SQM stock isn’t cheap. Could a boom in Chinese lithium prices make it a buy anyway?
Shares of Sociedad Quimica Y Minera de Chile S.A. (SQM +3.68%), one of the biggest stocks in Chile and a key international supplier of lithium for electric car batteries, jumped 5% through 11:25 a.m. ET.
You can thank China for the good news.
Image source: Getty Images.
Chinese moves the market
The Bureau of Natural Resources in Yichun, Jiangxi Province, plans to cancel 27 lithium mining permits in January, as Mining.com reports today. Lithium prices in China reacted immediately, rising 7.6% Wednesday, and this pushed global lithium mining stocks higher.
Granted, “all of the licences had already expired, some more than a decade ago, and most were registered for ceramic clay or limestone mining,” as Mining.com observes. And that raises a question: Will this really impact lithium prices?
Lithium analysts don’t think so. One analyst is quoted saying, “the licence cancellations would have little impact on supply, as none of the revoked permits covered operating mines.” Yet, as long as the licenses remained active, mining might potentially have resumed at any of the sites, legally, and that would add to the global lithium supply. It can’t happen now until the licenses are officially renewed.
Long story short: The chance of lithium supply growing just got a little smaller — and the chance of lithium prices rising in the future got a little bigger.
Sociedad QuÃmica Y Minera De Chile
Today’s Change
(3.68%) $2.36
Current Price
$66.53
Key Data Points
Market Cap
$9.2B
Day’s Range
$66.48 – $69.64
52wk Range
$29.36 – $69.64
Volume
1.9M
Avg Vol
1.5M
Gross Margin
27.33%
Is SQM stock a buy?
That’s good news for investors in Sociedad Quimica, aka “SQM,” and here’s even better news: SQM is one of the few lithium companies that’s already profitable without these potential price hikes. Last year, SQM earned $525 million, and generated positive free cash flow to boot.
Valued at 35 times trailing earnings, SQM isn’t exactly “cheap,” but if you’re betting on a lithium price boom, SQM is a much better bet than most alternatives.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.