I am neutral on Li-Cycle (LICY) as it has a strong competitive position, Wall Street analysts are bullish on it, and its average price target implies substantial upside potential over the next year. However, the company is still not profitable and operates in a highly innovative industry filled with uncertainty, so it remains highly speculative.
Li-Cycle is a lithium-ion battery resource recovery company headquartered in Mississauga, Canada. The company was founded in 2016 and has since expanded to operate as one of the largest recyclers of lithium-ion batteries in North America.
The company has been serving its clients, including companies that are building their battery production capacity. Although LICY started as a private establishment, it’s now listed as a public company.
LICY specializes in electric vehicle battery recycling and has been focusing its efforts on making lithium-ion batteries a sustainable and circular product. With several partners working with Li-Cycle, its co-owners Ajay Kochhar and Tim Johnston have high hopes for the company’s future.
Strengths
Li-Cycle has constantly been evolving and expanding its customer base, which includes LG Chem, Arrival, and GM’s Ultium. These players have a stronghold in their respective industries, and their partnership with Li-Cycle will allow the company to enjoy several benefits in the market.
The demand for battery recycling has been on the rise, and the company can use this increase in demand as its advantage and increase its capacity in several locations. LiCycle has also disclosed plans to upsize its North American First Hub Facility to increase its capacity and cater to the growing needs and demands of the industry.
Recent Results
Li-Cycle’s Fiscal Year and Q4 of 2021 ended in October. The company reported growth in its revenues, with the total for the quarter reaching $4.4 million and the total for the fiscal year reaching $7.4 million. These numbers were $0.5 million and $0.8 million in 2020’s fourth quarter and full fiscal year, respectively.
The adjusted EBITDA loss for 2021’s fourth quarter was $11.51 million, which in the fourth quarter of 2020 was at $4.12 million. The net loss for the three months that ended in October 2021 was $204.97 million. In the full fiscal year 2021, the net loss reached a total of $226.56 million. The loss per common share (basic and diluted) reached $1.31 in three months and $2.06 in twelve months in 2021.
Valuation Metrics
LICY stock is a bit difficult to value, given that the company is currently not profitable on neither a GAAP nor an EBITDA basis. The company needs to continue growing rapidly in order to generate the economies of scale necessary to turn a profit.
That said, Wall Street analysts expect the company to generate positive EBITDA in Fiscal 2023 and beyond. Analysts expect revenue to grow at a rapid clip in the coming years, including at a 427.5% pace in Fiscal 2022 and a 430% clip in Fiscal 2023.
Wall Street’s Take
Turning to Wall Street, LICY earns a Moderate Buy consensus rating based on three Buys and two Hold ratings assigned in the past three months. Additionally, the average Li-Cycle price target of $12.60 puts the upside potential at 64.3%.
Summary and Conclusions
LICY stock is boosted by rapid revenue growth as it operates in a high-growth sector that is fueling innovation and cutting-edge technologies like electric vehicles. Furthermore, its average price target implies that the stock has lots of upside potential over the next twelve months, and Wall Street analysts are bullish on it as well.
That said, the company remains unprofitable and filled with uncertainty as it operates in an innovative space with a lot of competition. As a result, investors should keep this risk in mind before adding shares.
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