Headquartered in Vancouver, Canada, Lithium Americas Corp. (LAC) is a development-stage company that explores for  lithium deposits. It announced on July 12 that it has agreed to acquire 42,857,143 subscription receipts of Arena Minerals Inc. Its  stock has rallied 28.9% in price over the past month—based primarily on investors’ optimism surrounding favorable government policies for electric vehicles (EVs)—to close yesterday’s trading session at $17.09. However, the stock has lost nearly 24% over the past six months.

Lithium plays a vital role in electric vehicle (EV) battery technology, and analysts predict 75% of all mined lithium could go to EVs by 2025. However, not all companies are expected to benefit from the industry tailwinds in the near term.

LAC generated roughly $400 million in gross proceeds in January 2021 from a public offering of its shares. It is expected to use the net proceeds to fund the development of the Thacker Pass lithium project, among others. Furthermore,  LAC was caught up in controversy regarding its Nevada mine, which has yet to generate revenue. So, the stock’s near-term prospects seem bleak.

Click here to checkout our Electric Vehicle Industry Report for 2021

Here are the factors that we think could shape LAC’s performance in the coming months:

Projects Under Development

LAC is currently focusing on two lithium development projects: The Cauchari-Olaroz project, located in Jujuy province of Argentina, and the Thacker Pass project, located in northwestern Nevada. On May 28, the company announced the commencement of planning to expand the second stage of the  Cauchari-Olaroz project, in partnership with Ganfeng Lithium Co., Ltd. The construction for the first stage is expected to be completed next year. LAC owns 49% of the project, while Ganfeng Lithium owns 51%.

Its Thacker Pass project received the Record of Decision (ROD) from the United States Bureau of Land Management (BLM) on January 15, 2021. Its  construction is expected to begin in early 2022, following the receipt of remaining state permits, water right transfers, and appeal resolution.

Weak Financials

For the second quarter, ended June 30, 2021, LAC’s net loss increased 222.5% year-over-year to $19.32 million. The higher net loss is attributable primarily to higher Thacker Pass expenditures and a $4.70 million loss on the JEMSE transaction. As a result, LAC’s  loss per share for the quarter came in at $0.16, up 128.6% year-over-year.

Poor Profitability

In terms of trailing-12-month ROTC, LAC’s negative value is lower than the 6.85% industry average. In addition, the stock’s trailing-12-month ROCE and ROTA are negative compared to the industry’s 11.85% and 5.02% respective averages.

POWR Ratings Reflect Bleak Prospects

LAC has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. Among  these categories, LAC has a D grade for Stability, which is consistent with its 1.45 beta.

The stock has a D grade for Growth, which is in sync with analysts’ expectations that its EPS will decline 24.2% in the current quarter (ending September 30, 2021).

Furthermore,  LAC has an F grade for Value. This is justified given its 3.95x  trailing-12-month P/B, which is 65.3% higher than the 2.39x industry average. It has an F grade for Quality also, consistent with its lower-than-industry profitability ratios.

In addition to the POWR Rating grades we have just highlighted, we have also rated LAC for Momentum and Sentiment. Get all the LAC ratings here.

LAC is ranked last out of 40 stocks in the Miners – Diversified industry.

Bottom Line

LAC is still in the early stages of development, and the closure of  international borders due to the COVID-19 pandemic is impacting its ability to resume full construction activities. Also,  its EPS is expected to remain negative in its fiscal  years 2021 and fiscal 2022. So, we think it’s wise to avoid the stock now.

How Does Lithium Americas (LAC) Stack Up Against its Peers?

While it’s wise to avoid LAC now since it has an overall POWR Rating of F, one  might want to consider the following three stocks in the Miners – Diversified industry, with an overall POWR Ratings of A or B: Nexa Resources S.A. (NEXA), Sierra Metals Inc. (SMTS), and Glencore plc (GLNCY)

LAC shares fell $0.54 (-3.16%) in premarket trading Tuesday. Year-to-date, LAC has gained 36.18%, versus a 20.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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