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Why Albemarle Stock is Crashing Today

Albemarle (NYSE: ALB) Shares fell double digits this morning and were trading 13.4% lower as of 10:40 a.m. ET on Tuesday. The world’s largest lithium producer is raising money to finance growth investments, among other things, and the market believes this is a sign of how tough the business environment remains for lithium companies.

A step to strengthen liquidity amid challenges

Albemarle said it plans to sell $1.75 billion in depository receipts, each representing a 1/20th interest in mandatory convertible preferred stock. Albemarle plans to list the depositary receipts on the New York Stock Exchange.

Albemarle said it expects to use the proceeds for general corporate purposes, which may include financing its growth projects, particularly the construction and expansion of operations in Australia and Chile.

What this means for Albemarle stock

Albemarle grew at a breakneck pace until lithium prices started to plummet in 2023. The company’s net sales fell 10% year over year, reporting a net loss of $618 million versus a profit of $1.1 billion in the fourth quarter, largely due to low lithium prices.

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However, Albemarle still ended 2023 with record sales of $9.6 billion, but expects to generate sales worth only $6.9 billion to $7.6 billion in 2024, even at the highest expected lithium prices. If lithium prices don’t recover, Albemarle’s sales could fall by at least 35% this year.

Given the backdrop, it appears that Albemarle’s cash flows will not be sufficient to finance growth this year. Although the company had cash and equivalents of nearly $890 million as of December 31, 2023, it expects to spend $1.6 billion to $1.8 billion on capital expenditures this year. That’s down from the $2.1 billion it spent in 2023 as management looks to prioritize projects nearing completion given tighter liquidity.

Does that make Albemarle stock a risky bet? I’d say no, because Albemarle is doing what it needs to do to boost cash flow in a tough market. Meanwhile, lithium prices are also recovering from last year’s crash and are up 12.4% so far this year, according to data from Trading Economics.

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Should You Invest $1,000 in Albemarle Now?

Consider the following before purchasing Albemarle stock:

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Why Albemarle Stock Is Crashing Today was originally published by The Motley Fool

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