To the Moon? What is going on with PLL?

By Chris Stiles • Saturday, August 13 08:35 • Permanent Link

Industrial metals & mining company Piedmont Lithium took Wall Street by surprise yesterday, surging to $66.7 and marking a 19.0% change compared to the S&P 500's increase of only 2%. PLL is -34.5% below its average analyst target price of $101.83, which implies there is more upside for the stock. As such the average analyst rates it at buy.

Piedmont Lithium is in the exploration phase of its business and does not yet have an operation mine. Its goal is to obtain permitting for a mine in North Carolina and to start mining from it in 2026. In the meantime, in the face of growing demand for lithium and a volatile stock price, it has announced that it may source its Lithium abroad until its domestic operation is underway.

As of the second quarter of 2022, the average Price to Earnings (P/E) ratio for US basic materials companies is 8.77, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (Eps), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

Piedmont lithium does not release its trailing 12 month P/E ratio since its earnings per share of $-0.03 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for PLL of -2382.1. PLL's gross profit margins case are 0%, which makes sense since the company has not yet started to sell any products.

Piedmont lithium 's P/B ratio of 450.7 indicates that the market value of the company esceeds the value of its assets by a factor of 450 -- again, this is not surprising for a mining company that does yet have an operational mine. But it is far from encouraging.

Much of the company's value to investors and analysts hinges on its anticipated sales revenue. Based on the company's positive earnings guidance of $1.14, the stock has a forward P/E ratio of 58.5. Should the company experience any further delays in the permitting process, or difficulties sourcing lithium from abroad, we can expect many investors to walk away.

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The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.