What happened
Shares of lithium battery recycler Li-Cycle Holdings (NYSE:LICY) ended Monday's trading session up 7.7%, although the gain wasn't in response to any news from the start-up company. Rather, the stock jumped largely as a result of newly initiated analytical coverage by investment research outfit Wedbush. Wedbush analyst Dan Ives rates the stock as an outperform with a price target of $14 per share, suggesting the company is well positioned to capitalize on the impending electric vehicle boom.
So what
Don't sweat it if you've never heard of it; most people haven't. The Canadian company only began to produce measurable revenue this year, with last quarter's 840% year-over-year improvement of its top line to $1.7 million. For the past three quarters Li-Cycle Holdings has done $3 million worth of business.
Much more awaits, however.
The company added another 14 customers to its roster during the recently ended fiscal third quarter alone, versus less than 50 such customers as of February. And, the bulk of its so-called hub-and-spoke supply chain has yet to be constructed. Its first-ever revenue-bearing hub will be located in Rochester, New York, but is only in development. The Rochester spoke, in the meantime -- along with the Kingston, New York, spoke -- is up and running, and in the aggregate collected 85 tons of lithium carbonate. Spokes in Alabama and Arizona are also in the works, with more planned after that. All told, Li-Cycle anticipates it will be able to recycle up to 240,000 tons of lithium batteries per year by 2025.
Image source: Getty Images.
Ives, who has kept close tabs on electric vehicle and lithium battery company Tesla, knows enough about the EV market's supply dynamics to suspect one of the biggest production bottlenecks ahead isn't the cars themselves, but the massive batteries needed to power them.
Now what
He's probably right, and Ives certainly isn't the first analyst to point to tight lithium supplies either. Indeed, with last year's worldwide sales of 3 million electric vehicles forecast by IHS Markit to reach an annual sales pace of 23.5 million by 2030, it would be surprising if the world's lithium industry was anywhere close to being ready to meet this brewing increase in demand. The need is real.
Would-be buyers can also enjoy the fact that this stock was trading in excess of Wedbush's target price of $14 as recently as February shortly after its initial public offering via a special acquisition company (or SPAC) transaction. Getting back to that price is hardly an impossible task.
Newcomers should brace for continued volatility, however, as this name is still more speculative than a solid blue chip sort of pick. Its current market capitalization of $1.5 billion is miles ahead of where market caps of companies with similar revenue would be, regardless of how big the opportunity is.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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