Here’s a major news item for lithium market enthusiasts. Canada-based Lithium Americas (NYSE:LAC) recently split into two separate, publicly traded companies. The split-off company is known as Lithium Argentina (NYSE:LAAC). This might sound like an exciting opportunity, but investors shouldn’t be too eager to jump headfirst into LAAC stock.
Unfortunately, some eager traders will probably buy Lithium Argentina shares before they’ve conducted their due diligence on the company. That’s like putting the cart before the horse. In the final analysis, it’s too early in the game to recommend an investment in Lithium Argentina with confidence.
Lithium Argentina Goes Public
There nothing wrong with wanting to invest in electric vehicle (EV) battery materials, such as lithium. Yet, buying shares of any mining company, irrespective of the commodity, involves a great deal of risk.
It’s even riskier if the company just recently went public. Such is the case with Lithium Argentina, as Lithium America’s press release states that LAAC stock only started trading “on a regular-way basis” on Oct. 4.
Not only did Lithium Argentina very recently become publicly available for share trading, but the company’s assets are (obviously) located in Argentina. Are you really prepared to invest internationally and study the economic and geopolitical landscape of Argentina?
Even the more established company, Lithium Americas, involves risk. Not long ago, Deutsche Bank analyst Corinne Blanchard downgraded LAC stock from “buy” to “hold” and slashed her price target on the shares from $25 to just $7.
Blanchard feels that the execution risk for Lithium Americas’ Nevada-based Thacker Pass lithium-mine project is “elevated.” She also believes that Lithium Americas shares are “richly valued.” Thus, cautious traders might conclude that it’s not an ideal time to invest in Lithium Americas or in Lithium Argentina.
LAAC Stock and the Price Discovery Process
An interesting thing happened in the market on the day Lithium Argentina went public. As InvestorPlace contributor Larry Ramer reported, LAC stock climbed 17% in early trading, but LAAC stock is retreated 2.6%.
A quick look at Yahoo! Finance shows that Lithium Argentina shares lost substantial value through Oct. 20. Perhaps this is the market expressing its skepticism regarding the future prospects of Lithium Argentina.
It’s still too early to easily predict the future trajectory of LAAC stock. The process of price discovery takes time. Besides, mining stocks can be volatile even after the market establishes a price range for them.
Before considering a share position, you should want to see more earnings reports from Lithium Argentina and more analyst ratings. Until then, it’s fine to just keep an eye on Lithium Argentina and see how the company fares over the coming months and quarters.
It’s Hard to Assign a True Value to LAAC Stock
What exactly is the intrinsic value of Lithium Argentina shares? It’s hard to answer that question at this point in time. But without the answer to that question, how can you invest in Lithium Argentina with confidence?
For cautious stock traders, it’s wise to let the process of price discovery play out for a while. All in all, LAAC stock gets a “D” grade and you might choose to revisit it later on, but shouldn’t jump into a hasty trade now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.