Shares of top lithium producer Albemarle (ALB 2.06%) are up 19 % over the last one-year stretch, obliterating the 14% decline in the S&P 500 index. Why? Thank the electric vehicle (EV) market, which has an insatiable appetite for lithium right now. Albemarle is rapidly scaling up its operations to try and feed the beast.

The company recently reiterated its outlook for sales and profitability in spite of signs the global economy is tapping the brakes. After its big run-up this year, is Albemarle stock a buy?

Charging up profitable growth

Albemarle's Q3 financials were impressive. Revenue jumped 152% from last year to $2.1 billion. Net income was $897 million, compared to a net loss of $393 million the same time in 2021. Adjusted EBITDA (used in assessing the company's operating performance) was up an astounding 447% to $1.19 billion as Albemarle scales up its mining output as a lithium industry leader. 

As epic as the numbers were, results were actually in line with expectations.  Legacy automakers off the sidelines and into the EV game. Lithium ion batteries were already prolific since they power billions of smartphones around the globe. But car batteries dwarf the amount of lithium in a phone, and there are only some 20 million to 30 million EVs on the road worldwide so far. As more automakers electrify their vehicle lineups, lithium production will only see greater demand.

Then there are the megapack batteries being plugged into the energy grid to help manage power storage and distribution. It's still early days for those, but the amount of lithium needed for one of these massive batteries dwarfs that going into smartphones or EVs. 

Long story short, Albemarle has plenty of demand, but not enough lithium to go around. As a result, lithium prices remain at all-time highs, as they have for well over a year now. 

How expensive is the stock really?

Albemarle mostly maintained its full-year 2022 financial guidance. Revenue is now expected to range between $7.1 billion and $7.4 billion (from $7.1 billion to $7.5 billion before). That's an increase of 117% from 2021 at the midpoint of guidance. Adjusted earnings per share are expected to range between $19.75 and $21.75 (vs. $19.25 to $22.25 previously).

As Albemarle's profitability has rapidly gone from nil to robust, the stock has suddenly gotten much more reasonably valued, as per management's predictions earlier this year. The shares currently trade for about 23 times trailing 12-month earnings per share, or about 15 times expected adjusted earnings per share for full-year 2022 (at the midpoint of guidance).

Make no mistake: Even though this company is growing at a rapid pace, don't think this is a "cheap" stock. All mining companies have cyclical operations. Any downturn in the EV market could have a big impact on the market price for lithium, and demand for Albemarle's product. Granted, the company does strike long-term contracts with its customers to try and smooth out what could become volatile lithium pricing.

But Albemarle at this scale has not been tested yet. The market is still pricing this stock for strong sustained growth, and signs are beginning to emerge that even the EV industry could be about to take a breather. The economy is slowing, the global consumer is having to adjust spending because of hot inflation, and automakers are reporting weakening sales. Even Tesla's growth could be getting ready to decelerate in the coming quarters due to disruptions in China and softer sales in the U.S. and Europe.

Nevertheless, though it may not be cheap, I wouldn't call Albemarle an expensive stock either. Other lithium companies are trying to boost their production so as to take advantage of the sales boom, but if EVs continue to grow their share of the auto industry, there will be plenty of new demand to go around in the decade ahead. Albemarle is forecasting average annual sales growth of 20% from 2022's numbers through 2025.

The Q3 earnings update was fantastic, and Albemarle is a buy in my book. However, given the inherent volatility involved with mining businesses, I nibble on this stock each quarter and slowly add a couple of shares to my existing position every once in a while (Albemarle is just shy of a 2% position in my portfolio). I'd preach caution here, and would advise other investors to do the same if you believe this is a long-term growth story in the making.