Albemarle Corporation (NYSE:ALB) is one of the largest producers of lithium in the world. The metal is a vital component in high-tech batteries, like the ones that are increasingly finding their way into electric vehicles. That said, lithium is a commodity subject to often unpredictable investor sentiment. That's been very bad news of late, but if long-term demand expectations play out as hoped Albemarle could still turn out to be a millionaire-maker stock.

Ups and downs

Albemarle's stock rose a dramatic 48% in 2017 as lithium prices moved higher through most of the year. Investors were excited by the metal's importance in making batteries for electric vehicles. With every major automaker working to build electric vehicles, this market is expected to explode. The hype and excitement around it was at a peak in 2017, and led to a huge run-up in anything related to lithium, including Albemarle's share price.

An electric car charging device

Image source: Getty Images

The stock then turned around and fell 40% in 2018 as lithium prices moved steadily lower through most of that year. The big catalyst was a shift in investor sentiment, not any material change in the electric vehicle market or Albemarle's business; in fact, Albemarle's 2018 fundamentals remained pretty solid. Although it won't reported full-year 2018 results until late February, through the first nine months of 2018 revenue was up 10% year over year, with adjusted earnings, which removed one-time items, advancing 21%. For reference, weak lithium prices were more than offset by volume expansion in the lithium operation. The company also reported solid results at its other divisions (more on this below).

It's pretty clear that Albemarle is being driven by the lithium story more than business fundamentals. The stock isn't appropriate for risk-averse investors -- the big commodity price-driven price swing is clear evidence of this. However, there are a number of reasons why more aggressive investors might want to step aboard what could be a millionaire-maker stock.

Check out the latest Albemarle earnings call transcript.

The long play

For starters, the company doesn't just mine for lithium. It has two other divisions as well: One makes bromine, a flame retardant used in electronics and other areas, and the other makes catalysts, primarily for the energy industry. These two divisions aren't small -- combined, they account for roughly 60% of Albemarle's revenue. Both have been performing pretty well lately, but the big picture here is that the company is using these operations as the financial foundation from which to expand in lithium.

Albemarle isn't a one-trick pony that will live and die based on the volatile price of just one commodity. It has a diversified business to see its plans through. To be fair, CEO Luke Kissam has stated that the company might eventually sell its other operations and become a pure-play lithium company. But that's not the situation today, and the bromine and catalyst operations help to offset the risk of the lithium expansion process and the market's on again/off again romance with the industrial metal. Moreover, if the company does decide to dispose of these two divisions, the move will likely result in a cash infusion that will shore up Albemarle's balance sheet, which would be a net positive even if asset sales reduce diversification.

ALB Chart

ALB data by YCharts

With this as a background, it's time to actually look at lithium. Obviously a big piece of the lithium story is investor sentiment, which is driving the price of the metal up and down. But the longer-term picture here is based on demand. Albemarle is projecting lithium demand to increase roughly 18% a year between 2017 and 2025, pushed higher by massive growth in demand from the electric vehicle market. How realistic is this outlook? It's around the midpoint of the estimates produced by industry watchers, including many of the largest investment banks.

To meet the demand that Albemarle is projecting, the company is working to swiftly ramp up production. That includes building new lithium operations, such as a recent investment in an Australian project, and expanding existing assets. The benefit of this is that production increases, like in 2018, can offset volatile commodity prices and allow the company to continue growing earnings. Albemarle's production goals are pretty substantial, too. It hopes to increase production as much as 30% in 2019, around 45% in 2020, and another 30% or so in 2021.

Putting it all together

Albemarle is working off of a solid diversified foundation as it rapidly expands its production of lithium to meet the robust demand it expects from electric vehicles. The worst case scenario appears to be that it continues to perform well on a fundamental level (including lithium production offsetting weak lithium prices), which investors will eventually take note of -- and likely reward with modest stock price appreciation. However, if lithium prices move higher again, investors are likely to push the price of Albemarle and its expanding lithium business sharply higher again. Either way, it looks like investors end up on top, with an upturn in lithium prices likely to quickly turn the shares into a really big winner.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.