The battery market is one of the world’s most dynamic and fast-growing sectors, driven by increased demand for clean energy and transportation. According to a recent industry report, the global battery market size was valued at $112.1 billion in 2021 and should reach $406.1 billion by 2023. This represents a compound annual growth rate (CAGR) of 15.9% from 2022 to 2030. The main drivers of this growth are the rising adoption of electric vehicles (EVs), the expansion of renewable energy sources, and the development of energy storage systems. This led to the rise of undervalued battery stocks.
U.S. equity markets have soared this year – and so have the valuations of companies in various sectors. For equity investors desiring to profit from both buoyant markets and the battery markets’ overall dynamism, their best bet may be to put money into undervalued battery stocks. When I wrote the word “undervalued,” I meant in terms of the company’s enterprise value to sales (EV/sales) or enterprise value to EBITDA (EV/EBITDA), or price-to-earnings (P/E) ratios. Below is a list of three battery companies investors should get in on before the stock market rally sends higher valuations.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) is a leading lithium exploration company with two major projects: the Thacker Pass project in Nevada, holding the largest lithium deposit in the U.S., and the Caucharí-Olaroz project in Argentina, a joint venture with Chinese company Ganfeng Lithium. The lithium explorer’s Thacker project has tremendous potential, with 16.1 million tons of battery-grade lithium carbonate equivalent (LCE) available for extraction.
The project had received much opposition from conservationists, but a court ruling in Nevada has allowed LAC to proceed with the construction and operation of the mine. The Thacker Pass project has also received $650 million in investment from General Motors (NYSE:GM), making it almost certain the major role this mine will play in creating electric vehicle batteries. This makes it one of those undervalued battery stocks worth considering.
Lithium Americas has an enterprise value of $2.9 billion and a forward-looking EV/sales ratio of 14.9. The company is expected to start producing lithium from its Caucharí-Olaroz project in the second half of 2023, and the Thacker Pass project will begin construction this year. The Thacker project is predicted to generate $1.2 billion in annual EBITDA and has a net present value of $4.95 billion, more than justifying LAC’s current enterprise value. The company also has a favorable outlook from Wall Street analysts, with an average price target of $38.19, implying an 82% upside potential from the current price of $20.94.
BYD Co. (BYDDF)
BYD Co. (OTCMKTS:BYDDF) is a Chinese company that manufactures EVs, batteries, and other related products. The Warren Buffet-backed company is one of the largest EV makers in China and has a diversified portfolio of vehicles, including sedans, SUVs, buses, trucks, and rail transit.
Although BYD has maintained an undisputed market position in China, the EV maker has its sights on being the world’s number top EV maker this year. Manufacturing electric vehicles is not only where BYD shines; however, the automaker has also become a key player in the battery market, ousting LG as the world’s number 2 EV battery supplier.
BYD Co. has an enterprise value of $103 billion and a forward-looking EV/EBITDA ratio of 11.1. The company has a solid financial performance, having grown revenue by 96% in 2022 to$61 billion. Similarly, net income increased by more than 5x year-over-year to $2.4 billion. Wall Street analysts have also noticed the EV maker’s positive outlook. BYD has an average price target of $44.28, implying a 24% upside potential from the current price of $34.16.
American Lithium (AMLI)
As a junior lithium exploration and development company, American Lithium (NASDAQ:AMLI) has two promising lithium projects: the TLC Lithium Project in Nevada and the Falchani Lithium Project in Peru. The TLC project is one of the largest and most accessible claystone lithium deposits in North America, with an estimated resource of 4.2 million metric tons of lithium carbonate equivalent (LCE).
The Falchani project is the world’s sixth largest hard rock lithium deposit, with an estimated resource of 4.8 million metric tons of LCE. The company ultimately hopes to participate in the race to develop electric car batteries, even advertising that its TLC mine is only 3.5 hours away from Tesla’s Giga factory. American Lithium’s strategy investment in battery minerals explorer Surge Battery Metals (OTCPK:NILIF) points further to the company’s help power the electric vehicles of the future.
American Lithium is sitting at an enterprise value of $438 million. Though the lithium explorer has no revenue yet, the free cash flows to be generated from its projects more than justify the current valuation. Furthermore, the company has a favorable valuation from Wall Street, with an average price target of $7.14, implying a 247% upside potential from the current price of $2.07.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
