The shares of Albermarle (NYSE:ALB) fell a dramatic 20% in December, according to data provided by S&P Global Market Intelligence. That left the company, best known for its lithium mining, near its lows for the year. There were a couple of ups and downs in 2018, but the biggest decline came in the last quarter of the year after the stock reached a peak in late September.
The big story around Albermarle is batteries. More specifically, the lithium that the company mines is used to make the batteries for electric vehicles. Demand from that single market is projected to grow at an incredible 35% compound annual rate between 2017 and 2025, spurring overall demand for the industrial metal. Regardless of whether or not that proves accurate, investors have clearly been attracted to the story, driving the price of lithium dramatically higher in recent years.
The upward bias changed in 2018, however, with lithium falling for most of the year. The price drop in December was particularly steep. Which is basically why investors soured on Albermarle's shares.
That said, there are two issues to consider here. The first is the price of lithium. That's clearly important to the company's financial results, since it affects how much it can charge for what it sells. But production volume is another facet of the story to keep in mind.
Assuming that Albermarle's demand projections are close to accurate, the lithium industry will need to keep ramping up supply. Which is exactly what Albermarle has been working toward, including inking a deal in December to acquire a 50% interest in a joint-venture lithium project in Australia.
In fact, despite weakening lithium prices, Albermarle's revenue was still higher year over year through the first nine months of 2018. And at the end of the third quarter, it continued to project 7% to 14% sales growth for the full year. That was partly driven by still-lofty lithium prices despite the pullback and, perhaps equally important, volume increases. Both factors play a role in the company's success today.
And don't forget that it has two other divisions (bromine and catalysts) that have been performing relatively well -- even if investors are only interested in the lithium division today. In other words, there's more to the Albermarle story than the current price of lithium.
Albermarle is increasingly reliant on lithium, so it isn't unrealistic for the stock to wax and wane with that commodity. That's not likely to change soon, and investors should expect continued volatility here. But if you own or are thinking about investing in Albermarle stock, make sure you look at the bigger picture and not just the price swings of a single commodity. In fact, the company could, in the end, be a better way to play the electric vehicle space than an automaker.