With seemingly every car company on the planet working hard to bring a new electric vehicle model -- or 30 new EV models -- to market, you might think that right now would be an excellent time to be in the lithium business. After all, each of those electric vehicles is going to need a large rack of rechargeable batteries to run it, and since lithium is a key element in most of those batteries, it stands to reason that demand for the metal would be through the roof.
That's actually not far from the truth -- but it isn't helping the stock price of lithium miner Albemarle (ALB -1.37%) much Thursday.
Albemarle stock crashed by more than 18% at one point during the session, and the sell-off seems to be sticking for the most part, with the price still down about 17.6% as of 2:07 p.m. ET. And yet, didn't Albemarle beat earnings when it reported on its fourth quarter Wednesday night? And doesn't that mean that Albemarle stock is therefore a buy on this dip?
The answers, I fear, are both yes and no.
Yes, Albemarle "beat earnings" last night, reporting a $1.01 per share Q4 profit where the consensus among Wall Street analysts was only expecting earnings of $0.99 per share. However, that was only a pro forma profit. When calculating its bottom-line number according to generally accepted accounting principles (GAAP), the lithium miner actually lost money. And Albemarle's cash flow statement plainly shows that it's burning cash hand over fist.
In 2021, Albemarle reported $609.5 million in negative free cash flow -- over 10 times more than the $51.6 million it burnt in 2020. And management plans to burn even more cash than that in 2022; its new guidance suggests that negative FCF for the current year could range from as little as $800 million to as much as $1.1 billion.
Granted, maybe Albemarle really does need to spend like mad to expand production to keep up with exploding global demand for lithium. Granted, too, spending all this cash is having a positive effect on production. The company expects revenue to grow by about 33% this year.
But if the price for that growth is such an enormous amount of negative free cash flow -- as seems to be the case -- then no, I cannot call Albemarle stock a buy, even after Thursday's sell-off.