It would appear there is confusion how to value companies, or perhaps inexperience or ill-informed in this hyper-information world.
Good morning. I'm tired and cranky missing out getting a ride on a cybertruck. Flying is not as exciting these days, feels like a chore.
Bobbydazzler I thought we had agreed to ignore each other's posts. Not sure what your other posts says other than the one someone replied to.. obviously directed at me. I can only assume you're talking about share price again, valuations and comparing companies.
How can I explain our forward-looking estimates on AZL in simple terms, against falling valuations of other companies with similar projects? Is it really that much a surprise that AZL's value increased in November?
Firstly, I apologise to other readers if this post appears condescending, that's not my intention. Allow me to dumb things down a bit for the beginners in investing. If you're already aware of this then this is not for you.
It's not the share price that we need to look at when valuing a company. That's a sign of someone who doesn't know what they are doing. Share price is misleading. A company's share price can remain the same while market valuation increasing, kept down when more shares are issued. Share price is not part of the mathematical equation, it is the answer. Share price = "x" .
Correct mathematical equation:
company value / shares outstanding = x (share price)
I say this because Google search would have beginners calculating incorrectly as follows:
share price x shares outstanding = market cap
So today's youth thinks they know better and can simply Google search everything to learn about "the market" but in reality, unknowingly learning bad habits and wrong mathematical calculations. This is one proof of it.
Secondly, it's good to keep track but companies' past valuations is not a good comparison to company's valuations today - even compared to itself. The market environment in October is vastly different to how it is right now, what more in months prior? Or in this instance in the future? To make a poignant point take a look at EVs of October to today. One minor price reduction on Tesla's website will have other companies reducing theirs also. Further, enter the cybertruck - a feat of engineering that the market told Tesla can't or shouldn't be done, Tesla has done. Just a month ago everyone was judging this vehicle based on looks alone. Today we learnt not to judge a book by its cover. So many "firsts" with this vehicle for the industry, it's hard to keep track. What more the impact to batteries and the raw materials that creates them? That said, most if not all the battery plants right now made for America, giga factories et al are made to measure requiring lithium. So there's no denying the future demand for lithium still doesn't have enough mines to supply the future demand based on these now unstoppable construction boom of American manufacturing capacity ramp up for the 21st century.
Based on these two facts alone, let's now take a look at SLI / Standard Lithium's market cap today (not its share price) - CAD500M or USD371M. This is over simplification but it's mostly based on the worth of its assets and future profitability. The best due diligence a mining company can provide is an economic feasibility study eg. PFS. So based on the company's flagship project's PFS, it is valued by the market at approx this much.
Now let's assume for argument's sake that AZL's Prairie Lithium PFS shows better economics: bigger in both NPV and IRR, and faster to profitably than SLI. are we to believe that the market will ignore it and keep AZL's valuation lower than SLI? Is it trustworthy and realistic, especially capex required to unlock the economics/value of the project?
Of course, these questions are posed onto SLI too, as well as all its peers... not just AZL. Based on all the projects' economics they are then ranked highest from lowest. That's where the market usually keep the company at unless/until something materially changes the equation.
Based on AZL's current ranking and therefore market valuation, we deem its PFS to hangs the equation and for the company's future estimate valuation to dramatically climb this ranking past above SLI. Given SLI is approx AUD565M today, that would translate to approx 17c per AZL share. So it's not hard to imagine how forward estimates can deem AZL to reach 20c per share if given confidence.
Also, although I ignore Big Sandy, I don't dismiss its potential and how the market might react if/when BLM approves the drilling permits. Its delay is what caused AZL's valuation to tank afterall.
Of course, each to their own risk/reward analysis. In particular, "Confidence" is hard to measure especially based on future outcomes. But at least hopefully this provides some level of understanding where forward estimates are coming from.
It's all relative at the end of the day. It really comes down to how much we're willing to buy and for how much we are willing to sell. We bought at 1.4/1.5c per share and I'm not willing to sell for less than 20c per share.
All said and done, as DC1234 says "who knows? I could be wrong". Or incredibly right and might not end up selling at all much like PLS, where we now no longer care about share price or company value as now we care more about profitability and dividends. No one knows for certain how the company evolves and whether or not the people behind it unlocks value.
Let's hope to receive some news about pilot plant results, perhaps that might stave of downward pressure and keep share price stable until the much awaited PFS... which by the way, many don't even know is coming, or otherwise much like the cybertruck already judged by the cover without knowing the details.
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