Lithium stock Albemarle (ALB -0.48%) shed 12.3% of its value in the month of December, according to data provided by S&P Global Market Intelligence. With Albemarle shares surging to all-time highs in November, analysts and investors alike started feeling nervous about the lithium stock's sky-high valuation and decided to take some profits off the table.
Lithium prices shot through the roof in 2021 as global demand for electric vehicles (EVs) zoomed. In fact, to simply say prices zoomed would be an understatement -- lithium carbonate prices in China gained a jaw-dropping 486% in 2021, according to data from Trading Economics. EVs run on lithium-ion batteries, and worldwide sales of EVs are estimated to have risen nearly 160% in 2021.
There seemed to be no stopping lithium stocks like Albemarle, and with shares rising so high, Goldman Sachs analyst Robert Koort decided in mid-December it was time to downgrade the rating on shares of the world's largest lithium mining company to sell. Albemarle also deals in bromine and catalysts, but lithium has turned out to be the largest contributor to the company's revenue and profit in recent quarters.
To be sure, Koort is bullish about the lithium market backed by the EV boom, but the analyst expects easing supply to help moderate lithium prices and eventually weigh on investor sentiment. Koort still upped the price target on Albemarle to $205 a share from $199 a share, but with the stock already trading nearly 12% above Koort's new price target, it was bound to feel the heat. Nearly all of the dip in Albemarle shares in December came after the Goldman Sachs downgrade.
Albemarle, on its part, continues to invest aggressively in its lithium business. It recently signed two agreements on lithium greenfield projects in China and also acquired a China-based lithium company whose plant is expected to start production in the coming months.
Lithium prices are expected to rise even higher in 2022 on low supply and high demand. S&P Global market Intelligence projects global lithium supply to rise by almost 27% in 2022, but it sees demand growing at the same pace, which means the lithium market is expected to remain tight this year.
So yes, Albemarle shares might be steeply valued right now, but so are EV stocks. Investors are willing to pay a premium where they can find growth; and given the pace at which the EV market is growing, Albemarle's growth may have only just started. Just keep one point in mind though: Albemarle sells lithium mainly under long-term contracts and is, therefore, only marginally exposed to the spot market. So if you're betting on Albemarle, don't do it just because lithium prices are rising, but focus on Albemarle's real growth catalysts instead.