Key Points

Raymond James initiated coverage of Standard Lithium stock late Thursday afternoon with an outperform rating. The financial services company thinks Standard Lithium stock will be worth $2.75 per share in 12 months -- but it already trades higher than that. Either Raymond James' buy recommendation or its target price -- or both -- make no sense. 10 stocks we like better than Standard Lithium ›

Lithium mining hopeful Standard Lithium (NYSEMKT: SLI) -- it's too early to call it a "lithium miner," as it has yet to actually start extracting the mineral -- was trading 6% higher as of 11:25 a.m. ET Friday as investors rushed to buy the stock. And why did they do that?

Because Raymond James told them to.Image source: Getty Images.

What Raymond James says about Standard Lithium

After the close of trading Thursday, investment bank Raymond James initiated coverage of Standard Lithium with an outperform rating, as TheFly.com reports, and with a curious 12-month price target of $2.75.

"SLI is a leader in Direct Lithium Extraction ... focused on advancing its portfolio of lithium-brine projects in the United States," wrote Raymond James analyst Daniel Magder. "While still in the development stage, we believe SLI offers investors good exposure to lithium."

So this is a long-term play on lithium demand growing over time, and on Standard Lithium becoming a company that can help meet that demand.

Is Standard Lithium stock a buy?

But here's the thing: Despite telling investors Standard Lithium will outperform the stock market, Raymond James valued the stock at only $2.75 per share. Standard Lithium stock was already trading at $2.71 per share when the analyst published his view, and it costs $2.88 per share after Friday morning's run-up.

What confuses me is why Raymond James would recommend buying a stock when it had -- at the time of that recommendation -- less than 2% potential upside over the next 12 months based on the analyst's own calculations.

It just doesn't make sense to me, especially knowing that Standard Lithium is unprofitable, and that there are profitable lithium companies like Albemarle, SQM, and Rio Tinto for investors to choose from.

My advice is to avoid Standard Lithium and buy one of its profitable rivals instead.

Should you invest $1,000 in Standard Lithium right now?

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Rich Smith 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 Standard Lithium Stock Lit Up Today was originally published by The Motley Fool

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