Lithium-ion battery recycling company Li-Cycle Holdings Corp. (LICY), which is headquartered in Mississauga, Canada, completed its stock listing in August 2021, merging with special purpose acquisition company (SPAC) Peridot Acquisition Corp, and generating $527 million in net proceeds. It also recently announced that Koch Strategic Platforms would make a $100 million investment to support LICY’s rapidly expanding growth opportunities in North America, Europe, and Asia.

The stock has gained 15.5% in price over the past month and 52.1% over the past three months to close yesterday’s trading session at $12.95. 

However, LICY’s losses widened in its fiscal third quarter. In addition, its shares are currently trading 16.1% below their all-time high of $15.74, which they hit on February 16, 2021. Ongoing labor shortages and supply chain disruptions make the company’s near-term prospects bleak.

Here is what could influence LICY’s performance in the upcoming months:

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For its fiscal third quarter, ended September 30, 2021, LICY’s revenue surged 840% year-over-year to $1.70 million. The company’s total assets increased 306.4% year-over-year to $49.41 million.

However, its loss from operations for the quarter increased 261.1% year-over-year to $6.22 million. And its net loss came in at $6.90 million, representing a 280.9% year-over-year increase. Its loss per share was $2.88, up 234.9% year-over-year.

Low Profitability

In terms of trailing-12-month asset turnover ratio, LICY’s 0.09% is 89.1% lower than the industry average of 0.79%. Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA are negative compared to the 3.45%, 6.73%, and 5.15% respective industry averages.

Stretched Valuation

In terms of forward P/S, LICY’s 279.93x is significantly higher than the1.66x industry average. Its 282.22x forward EV/S is substantially higher than the 2.07x industry average. And the stock’s 4.16x forward P/B is 33.6% higher than the3.11x industry average.

POWR Ratings Reflect Bleak Prospects

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

Our proprietary rating system also evaluates each stock based on eight distinct categories. LICY has a D grade for Quality, which is in sync with its lower-than-industry profitability ratios.

LICY also has a D grade for Growth and Sentiment. This is justified because analysts expect its EPS to remain negative in the current quarter, current year, and next year.

The stock has a D grade for Stability, which is consistent with its 1.14 beta. In addition, LICY has a D grade for Value, which is in sync with its higher-than-industry valuation ratios.

LICY is ranked #85 of 87 stocks in the Industrial – Services industry. Click here to access LICY’s ratings for Momentum as well.

Bottom Line

LICY is not expected to turn profitable anytime soon because it could incur significant expenses in the near term. Because the stock looks overvalued at its current price level, we think it is best avoided now.

How Does Li-Cycle Holdings (LICY) Stack Up Against its Peers?

While LICY has an overall POWR Rating of F, one might want to consider investing in the following Industrial – Services stocks with an A (Strong Buy) rating: Heritage-Crystal Clean, Inc. (HCCI), PT United Tractors Tbk (PUTKY), and Ryder System, Inc. (R).

Note that R is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.

LICY shares were trading at $12.57 per share on Tuesday afternoon, down $0.63 (-4.77%). Year-to-date, LICY has gained 21.33%, versus a 25.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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