We are likely experiencing some negative sentiment generated by this post where it calls out Core Lithium as being in a green bubble.
afr . com/markets/equity-markets/novonix-australian-ethical-could-be-in-a-green-stock-bubble-20211202-p59e17
Relevant section:
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There are dozens, or perhaps hundreds of other lithium or green-focused businesses that will rely on positive sentiment and announcements (rather than cashflows) to justify staggering valuations over the next 12 months.
Lake Resources, Liontown Resources,
Core Lithium, Arizona Lithium, Sayona Mining and short seller target Vulcan Resources have commonly soared 500 per cent to 1000 per cent over the past 12-24 months thanks to exciting stories, a green premium, and expectations for rising lithium prices.
In reality bubbles often don’t pop, but deflate as momentum reverses and speculators using a mixture of technical signals and guesswork sell shares based on recent trends. Whether the green stocks’ valuations prove justified on fundamentals or a bubble deflates remains to be seen.
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My view is simple - The green energy transition is here, and it's going to grow exponentially. Many people struggle to see the signposts that come with disruption such as this, and will fight it to the end. Yes, some valuations may seem high for a company with no earnings, but growth stocks have always traded based on future earnings potential - the trick is knowing when a company valuation has gotten ahead of itself or when the risk starts to outweigh the reward.
When it comes to lithium company valuations, I can understand why the author of the AFR article feels that we are in a green energy bubble. It's likely he doesn't see the gigantic shift that is occurring. It looks slow at the moment and valuations definitely do not match earnings, but growth stories take time, slowly, slowly at first, but then it comes in a rush. Many people and companies don't see disruption until it's already happened.
We are at the very early stages of the disruption, and unless the world finds a silver bullet to climate change, companies that contribute to the disruption will continue to be valued based on the projected growth profile that is to come.
That's not to say that all green energy companies are worth investing in. There have been some very speculative valuations over the last couple of months based on just picking up land with no evidence they have anything. Or a partnership with a major like Yahua in the green energy space. The trick is to find companies that will be part of the transition, and are not just hype.
Core Lithium is fully funded, has contracts with customers and has all government approvals in place - we will be mining through through the boom period. The world hasn't found a replacement for lithium yet, and there is no new magical lithium supply that's going to fill the void for the foreseeable future. Thus, we pay what looks like a premium valuation now for something that IMO will be worth significantly more in the future. I'm invested based on where I see the company in 3-5 years, not the current price to earnings ratio. If I wanted 5% ROI per annum I would invest in something with a fairer valuation - like a bank.
Have a good weekend all.
(20min delay)