Lithium Americas Corp. (LAC) is a development-stage Canadian-based resource company focused on the advancement of two significant lithium projects: the Cauchari-Olaroz project and the Thacker Pass project. The Cauchari-Olaroz project is a lithium brine mineral project, while the Lithium Nevada project is focused on a smectite clay-based lithium.

LAC operated mines have secured sufficient funding and received critical environmental permits to bring its projects to commercial production over the past couple of months. Also, last week the company received the Record of Decision issued by the U.S. Bureau of Land Management for its Thacker Pass lithium project, which will  allow it to secure more funding. Given these developments, the stock has gained 57.9% year-to-date.

However, rising uncertainty in the markets following a  new strain of coronavirus  discovered in the United States might drive  a trend reversal. Moreover, with President Biden’s desire  to sign a favorable trade deal with China, cheaper lithium imports from the country are a threat to LAC. This, combined with several other factors, has led LAC to a  Neutral rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates LAC:

Trade Grade: B

LAC is currently trading above its 50-day and 200-day moving averages of $15.91 and $10.81, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 114.2% gains over the past three months reflect solid short-term bullishness.

LAC reported $71.89 million in cash and cash equivalents, including an $18 million drawn from its credit facilities to fund Caucharí-Olaroz, in the third quarter ended September 30, 2020. The company reported a total loss of $6.49 million and a loss per share of $0.07 over this period.

On January 15, LAC announced that the United States Bureau of Land Management (BLM) has issued the Record of Decision (ROD) for the Thacker Pass lithium project following completion of the National Environmental Policy Act (NEPA) process. The ROD represents an important milestone in the development of the project. With this federal permit, the company cand advance its  financing process,  including discussions with potential strategic partners.

This month, , LAC closed  a $400 million public stock offering. The company issued approximately 18.18 million common shares. LAC intends to use the proceeds to fund development of the Thacker Pass lithium project and for general corporate and working capital purposes.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, LAC’s positioning is not favorable. The stock is currently trading 31.1% below its 52-week high of $28.75.

The company’s total assets have grown at a CAGR of 25.2% over the past three years. However, its cash levels  have remained low over the years due to aggressive spending on capital infrastructure.

Peer Grade: C

LAC is currently ranked #29 of 67 stocks in the Miners – Diversified industry. Other popular stocks in this industry are Piedmont Lithium Limited (PLL), Fortescue Metals Group Limited (FSUGY) and MMC Norilsk Nickel PJSC (NILSY).

PLL beat LAC by gaining 526.7% over the past year. FSUGY, in contrast, gained 124.8% while NILSY declined 2.7% over this period.

Industry Rank: C

The Miners – Diversified Industry is ranked #94 of  123 StockNews.com industries. The companies in this industry are focused on developing mine sites, and quarry metallic minerals. They also provide related support services and prepare minerals for sale.

The coronavirus pandemic had a significant impact on industrial activity, global mining sites, and downstream producers in 2020. Although the world is still emerging from the pandemic, it  is far from a resumption of  full-blown industrial production. Moreover, market sentiment and volatility in commodity prices along with the potential prolonged economic weakness remains a key source of uncertainty for the industry.

Overall POWR Rating: C (Neutral)

LAC is rated Neutral due to its unfavorable past performance, but the stock exhibits short-term bullishness and solid price momentum, as determined by the four components of our overall POWR Rating.

Bottom Line

Despite gaining more than 200% past six months, LAC growth potential looks bleak given its unfavorable earnings and revenue outlook and future price momentum.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is neutral for LAC. An average broker rating of 1.75 indicates  favorable analyst sentiment. The consensus EPS estimate for the about-to-be-reported quarter (ended December 31, 2020) represents a 38.3% rise from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. However,  of two Wall Street analysts that rated the stock, neither rated it Strong Buy. So, we advise you to hold your investment decision related to the stock in near term.

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LAC shares were unchanged in after-hours trading Friday. Year-to-date, LAC has gained 57.05%, versus a -1.02% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...

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