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Albemarle Corporation (NYSE: ALB), a prominent player in the lithium market, has been witnessing a significant drop in its stock value recently, hitting new 52-week lows every day. On July 9th, 2024, Albemarle’s stock plummeted by 8.7%, reaching its lowest point since October 2020.

This decline was notably the most substantial drop within the S&P 500 for the day, exacerbated by downward revisions in price targets from key Wall Street analysts.

Market dynamics and analyst perspectives

Albemarle’s stock tumble is closely tied to the ongoing slide in lithium prices, which have plummeted from approximately $85K per metric ton in late 2022 to about $12.5K per ton recently.

Analysts Ben Kallo from Baird and Joshua Spector from UBS have both lowered their price targets for Albemarle, citing persistent low lithium prices that are likely to impact the company’s second-quarter performance negatively.

Kallo maintained an ‘Overweight’ rating but reduced his price target from $170 to $127, highlighting potential risks from the upcoming U.S. elections on the electric vehicle (EV) market, which directly impacts lithium demand.

Company’s fundamental health

Despite the current market challenges, Albemarle has shown resilience through strategic maneuvers. Recently, the company was granted an option by Chile’s economic development agency, CORFO, to increase its lithium production quota significantly.

This adjustment could potentially boost Albemarle’s production capacity by over 50%, strengthening its long-term output capabilities amidst fluctuating market prices.

Recent earnings and financial performance

Albemarle’s financial performance in recent quarters has mirrored the volatility in lithium prices. For the first quarter of 2024, the company reported a 47% year-over-year decline in revenues, aligning with market expectations.

Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in its largest business unit, which focuses on lithium-ion batteries for EVs, saw a drastic reduction, plummeting from $1.57 billion in the same quarter the previous year to just $198 million. This drop reflects the severe impact of collapsing lithium prices on the company’s profitability.

Valuation and market sentiment

The substantial decline in lithium prices and its repercussions on Albemarle’s stock valuation brings to light concerns regarding the company’s future growth trajectory.

With lithium prices reaching what some analysts are calling ‘unsustainable lows,’ the company’s market valuation has experienced significant pressure.

This scenario has prompted discussions about whether Albemarle’s stock, trading at a forward P/E of just 3.6,  is currently undervalued, considering its future growth prospects in the EV market and potential stabilization in lithium prices.

Strategic moves and long-term prospects

In response to the challenging market conditions, Albemarle has been proactive in its strategic initiatives. The company plans to further its lithium auction processes to enhance price transparency and market understanding.

Additionally, Albemarle’s recent agreement to boost its lithium quota in Chile signifies a strategic move to cement its position as a leading lithium producer globally, despite current market adversities.

As we’ve dissected the various elements affecting Albemarle—from market dynamics and financial health to strategic moves and analyst ratings—the next segment of our analysis will focus on what the charts indicate about Albemarle’s stock trajectory.

With all these factors in play, it’s crucial to understand the technical perspective to ascertain potential future movements in the stock’s price.

Long-term support at $98.8 broken

Albemarle’s stock has closely tracked lithium prices over the years. It entered a downtrend in late 2022 right when lithium prices peaked. At that time the stock was trading above $300.

(Click on image to enlarge)

ALB chart by TradingView

Since then the stock has been on a slow and gradual downward path. Recently, it has broken below its long-term support near $98.8, which is not a good indication for bulls.

Hence investors who are bullish on the stock or hopeful about a recovery in lithium prices and the stock must refrain from opening a fresh long position here. New long positions should only be considered if the stock makes a turnaround and starts trading above $98.8.

Traders who continue to remain bearish on the stock and want to open fresh short positions must also remain cautious as the stock has become volatile over the past few weeks. They should consider short positions near $95 with a stop loss above $98.8. If the bearish momentum prevails, the stock will next find support near $80.2 where one can book profits.

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