Shares of Livent Corporation (LTHM -4.41%), the lithium miner spun off from agricultural chemicals company FMC two and a half years ago, surged as much as 10% in early Wednesday trading, and is still up 6.8% as of 2:35 p.m. EST.
You can thank investment bank Cowen for that.
In a note out this morning, Cowen initiated coverage of Livent stock. The analyst only gave the stock a market perform rating -- equivalent to a hold, not a buy. Still, Cowen assigned the stock a $19 price target, and seeing as Livent stock closed below $17 yesterday, investors are reacting to the implied promise of nearly a 12% one-year profit.
Thanks to today's surge in price, more than half of that promised profit has already been reaped, of course. So at this point, investors might want to start giving greater thought to the negatives contained in Cowen's note -- and not just react to the positive projected price.
To wit, in its note covered by TheFly.com, Cowen warned that it sees limited potential for Livent to expand its asset base (i.e., new places to mine lithium) given the stock's high debt levels. Personally, I'm not too concerned with debt here, though. With barely $250 million in debt against a market capitalization of more than $2.6 billion, Livent doesn't look over-leveraged to me.
Of greater concern is the valuation. Livent isn't currently profitable, and its profits have been declining for two years straight. Analysts who cover the company predict the company will turn profitable this year, however, the projected profit of $0.09 implies a rather steep P/E ratio of more than 200 on the stock currently.
Far from anticipating a climb higher to $19, I think investors should be worrying more now about how low Livent stock would need to go before its P/E starts to look more reasonable.