Albemarle vs. SQM: Whose Lithium Business Results Were Best in Q3?

Sociedad Quimica y Minera (SQM 1.82%), or SQM, reported its third-quarter results last week; Albemarle (ALB 1.71%) did the same earlier this month. So, investors can now compare the two major lithium producers' results.

There are a few things to keep in mind, including that long-term investors should not place too much weight on a single quarter's performance. Moreover, both companies have businesses other than lithium, so their overall results will also be affected by the performances of these businesses. 

Lithium stocks, in general, have been outperforming the market over the last year, thanks largely to surging demand and skyrocketing prices for the metal, which is used to make lithium-ion batteries for electric vehicles (EVs). 

Lithium business revenue growth

Data sources: Company earnings reports.

Winner: SQM.

SQM, based in Chile, wins this category. Its lithium segment's revenue growth was significantly higher than that of Albemarle, which is headquartered in the United States. That said, both companies had powerful revenue growth.

SQM's year-over-year revenue growth in its lithium business was primarily driven by a massive jump in its average realized lithium price, though a higher sales volume contributed 89% to revenue growth. 

Albemarle's revenue growth in its lithium business was also fueled largely by a huge jump in its average realized lithium price, with an increase in sales volume contributing 20% to revenue growth. 

SQM was able to ramp up its lithium production capacity over the last year faster than Albemarle, which enabled it to sell significantly more lithium relative to last year at a time when prices for the metal are at record highs. Both companies have capacity expansion projects underway. 

Lithium business profit growth

The companies aren't using the same metric to measure the profitability performances of their business segments. But that shouldn't matter for this category, as it measures year-over-year growth in profitability. 

Data sources: Company earnings reports. EBITDA = earnings before interest, taxes, depreciation, and amortization. *These numbers should be very close, but are likely not exact because they had to be calculated using one metric input that SQM terms as "approximately." 

Winner: SQM. 

Once again, SQM is the victor. That said, both companies' lithium businesses are growing profits like gangbusters. This profit growth reflects a tight market for lithium, which has lit a fire under the price of battery-grade lithium. 

Lithium business profit margin

The same note applies here as with the last category: The two companies aren't using the same metric to measure the profitability performances of their business segments. Unlike the last category, this fact could affect this comparison. 

The profit margins shown are calculated by dividing lithium business profit (adjusted EBITDA for Albemarle, gross profit for SQM) by revenue.

Data sources: Company earnings reports. 

Winner: Albemarle. 

Keep in mind that this is not an apples-to-apples comparison, as previously noted. To say that both companies' lithium businesses are incredibly profitable would be an understatement.

Size of lithium business relative to overall business 

This category doesn't lend itself well to choosing a winner, so it's not included in the scoring.

Data sources: Company earnings reports. 

Winner: N/A

Both companies have a little diversification, which is usually a positive, at least over the long term. 

Albemarle's two non-lithium segments are bromine and catalysts, which accounted for 17% and 11%, respectively, of its third-quarter revenue.

SQM's other businesses include two fertilizer-focused segments (specialty plant nutrition and potassium chloride and potassium sulfate), iodine, and industrial chemicals. These segments accounted for 10%, 2%, 7%, and less than 2%, respectively, of total revenue in the third quarter.

And the winner is... SQM.

SQM is the winner in this metric face-off, as it scored 2 points to Albemarle's 1 point. One category didn't count in the scoring.

Keep in mind the caveats mentioned at the top of the article. There are also other factors to consider when you're gauging the relative attractiveness of stocks. These include such things as a company's financial liquidity and the valuation of its stock. 

In this specific case, the fact that SQM is based in Chile increases its risk level relative to U.S.-based Albemarle. More specifically, it has higher political and currency risks. This factor is why Albemarle is probably the better bet for most investors.