Founded in 2016, Li-Cycle is a lithium-ion battery recovery company and the largest recycler of lithium-ion batteries in North America.
I am neutral on Li-Cycle (LICY) because while Wall Street analysts are overwhelmingly bullish on the stock right now and the company is growing rapidly – it is still far from profitable and therefore remains highly speculative. (See Analysts’ Top Stocks on TipRanks)
Strengths
Li-Cycle is one of the first innovators in the field of lithium-ion battery recycling, having state-of-the-art technology that aims to reduce damage to the environment that would be caused by the growing need for batteries to power electronic products.
Li-Cycle collects lithium-ion batteries from various locations and recycles them in a way that prevents any fires or explosions. It also reuses the elements within the battery to ensure that there are no landfill discharges.
Recent Results
Li-Cycle recently announced its Q3 2021 results. The company reported net revenue of $1.7 million, which represents 840% growth from the previous year’s reported revenue of $0.2 million.
Product sales revenue was $1.6 million, due to increased Kingston & Rochester Spoke processing (spokes are the company’s battery recycling facilities). This growth was in-line with the expectations.
The company added 14 new battery supply companies during the third quarter and reported black mass production at 524 tonnes. Of the metals contained within the black mass, lithium carbonate equivalent, nickel, and cobalt accounted for the majority.
The company also finalized a contract with Ultium Cells to handle manufacturing scrap. It expects to begin this during the final quarter of 2021.
There are plans for expansion, with spokes in Gilbert, Arizona expected to be completed in early 2022, and another in Tuscaloosa, Alabama expected for mid-2022.
The spoke in Alabama has an initial capacity of 5,000 tonnes per year, which may expand to 10,000 tonnes per year. With this, the company’s total operating capacity is expected to go up to 25,000-30,000 tons of lithium-ion batteries per year.
The Rochester, New York hub is performing as expected, and breakeven profitability is expected by the end of 2021.
Valuation Metrics
Li-Cycle’s stock is very difficult to value as it is not profitable at the moment and has not been publicly traded for very long at all. That said, the company is growing very rapidly and operates in a high potential industry. Therefore, the stock could potentially generate massive returns from here if it can continue its torrid pace of growth and achieve profitability in the near future.
In 2022, the company is expected to generate 557.1% revenue growth, significantly improve EBITDA margins from -275.5% in 2021 to -25.1% in 2022, and reduce its loss per share from -$1.29 to -$0.13 in 2022.
Wall Street’s Take
From Wall Street analysts, Li-Cycle earns a Strong Buy consensus rating, based on six Buys and one hold rating assigned in the past three months. Additionally, the average Li-Cycle price target of $14.00 implies 11.6% upside potential.
Summary and Conclusion
Li-Cycle is growing extremely quickly as it plays an important role in the rapidly growing lithium-ion battery industry. The company enjoys a very bullish outlook from analysts and is expected to rapidly improve its profitability as it continues to grow, thereby giving it increasing economies of scale.
That said, the stock is quite speculative as the company is still far from being profitable and must deliver on very optimistic growth expectations to generate attractive returns for shareholders.
As a result, while it might be a good time to add shares, investors should keep the risks in mind and size their exposure accordingly.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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