The lithium market is facing a seismic shift as prices drop at an alarming rate. Lithium prices have nosedived by more than 70% this year, sending shockwaves through the industry. While the recent market downturn has created buy-the-dip opportunities for some high-quality lithium stocks, it has also exposed several lithium stocks to sell.
Mineral Resources (MALRY)
Mineral Resources (OTCMKTS:MALRY) is an Australian company holding a significant stake in the lithium market, with assets including the Mt Marion and Wodgina operations. Lithium sales make up more than 23% of MALRY’s sales, and this exposes the firm to the volatility of lithium prices, which have been dropping globally since 2023. This downturn presents a potential risk to Mineral Resources’ burgeoning lithium segment.
Financially, the company’s performance raises concerns. A consistent drop in quarterly EPS since 2022 suggests that, despite strong showings across its top line, shareholder returns per share are diminishing. Moreover, its levered free cash flow (FCF) margin stands at a negative 26.57%, compared to the sector’s positive median of 3.98%. This trend, if it persists, may not bode well for the company’s long-term sustainability. Additionally, the company’s return on total assets of only 2.90% is trailing behind the sector median of 3.58%, which indicates a less efficient use of assets compared to its peers.
Standard Lithium (SLI)
Standard Lithium (NYSE:SLI) is a top North-American player in the lithium space, which finds itself in a critical yet challenging position. While SLI’s South West Arkansas lithium project shows promise, given the quality of its lithium deposits, it’s still a far cry from generating revenues. Moreover, the strong performance of more established names in its industry, such as Albemarle Corporation (NYSE:ALB), makes SLI an unattractive bet.
Financially, SLI is walking a tightrope. With a market cap north of $450 million yet no revenue, and a cash position that suggests a runway of only 2-3 years, the company faces the daunting task of securing additional capital. This necessity might lead to stock dilution, which risks reducing the value of existing shares. In the grander scheme of things, SLI’s potential is undeniable, but current financial uncertainties and the inherent risks of a market reliant on future trends mar its potential.
Global X Lithium & Battery Tech ETF (LIT)
The Global X Lithium & Battery Tech ETF (NYSEARCA:LIT) is designed to track the lithium market, mainly focusing on mining, refining, and battery production. However, a closer look at its financial metrics reveals several areas of concern. The ETF has an expense ratio of 0.75%, which is an alarming 56.25% higher than the median for all ETFs. Moreover, its dividend yield over the trailing twelve months (TTM) is 1.53%, significantly lower than the median yield of 2.62% for all ETFs.
The ETF’s dividend growth rate over the past five years (CAGR) is reported at -10.51%, a stark contrast to the median growth rate of 5.78%. Also, the ETF’s standard deviation is at 35.49%, more than double the median ETF’s 16.83%, indicative of its incredible volatility. Moreover, the percentage of assets in the top ten holdings is 48.60%, compared to the median of 37.10%, which indicates a concentration risk. In terms of returns, the picture remains bleak: the 1-week, 1-month, 6-month, and year-to-date price returns are firmly in the negative, with YTD returns at -22.95%.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines