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mid-cap

Should You Punt on This NYSE - Listed Basic Materials Stock – SLI

Jun 02, 2022 | Team Kalkine
Should You Punt on This NYSE - Listed Basic Materials Stock – SLI

 

Standard Lithium Ltd.

Standard Lithium Ltd. (NYSE: SLI) is a lithium development and technology business located in Canada that is focused on developing a portfolio of lithium-brine-containing properties in the United States using Direct Lithium Extraction (DLE) and purification methods. The Company's project is in southern Arkansas, where it is evaluating the economic potential of lithium extraction from approximately 150,000 acres of licensed brine activities. Lanxess Project's south plant site in southern Arkansas has commissioned its industrial-scale direct lithium extraction demonstration plant.

Key Financials for Q3 FY22

  • Standard Lithium Ltd. is a pre-revenue company as the company is currently evaluating the economic potential of lithium extractions.
  • Total operating expenses for the quarter ending 31st March 2022 were USD 13.83 million, while the expenses were USD 9.76 million for the same period a year ago. This increase was majorly due to an increase in interest income from negative USD 0.06 million to USD 1.67 million, and an increment in S&A expenses by 26.5% for the quarter.
  • Total net income also got reduced from negative USD 9.8 million for the same period a year ago to negative USD 13.74 million for the quarter ending 31st March 2022.
  • Diluted EPS fell from negative USD 0.07 to negative USD 0.08 in the quarter ending 31st March 2022.
  • Total cash and cash equivalents at the end of the third quarter of 2022, was USD 136.9 million compared to USD 30.3 million on 31st December 2021, this additional cash was gained through the issuance of stocks furthermore.
  • Total Debt at the end of the third quarter of 2022, was USD 0.3 million compared to USD 0.4 million on 31st December 2021.

Other Important Highlights to consider

  • Standard Lithium Ltd. made a USD 2.5 million equity investment in Aqualung Carbon Capture AS, a pioneer in carbon capture technology, on May 12, 2022. Standard Lithium's investment was made as part of Aqualung's USD 10 million strategic equity round. The carbon capture pilot project, which will be in a natural gas processing facility in southern Arkansas, is being developed in conjunction with Aqualung.
  • Standard Lithium Ltd. has concluded an agreement with its strategic partner, LANXESS Corporation, dated February 23, 2022, that simplifies and expedites the plan for the building of Arkansas' first commercial lithium project, which will be built at a Lanxess plant in El Dorado, Arkansas.

Key Risk analysis

  • Technology risk: If the corporation fails to effectively execute its DLE technology, the project will be rendered obsolete. As a result, the risk that this technology may not work as intended is a critical one to address. Standard Lithium, on the other hand, has given us good cause to believe that the method will work. The company's DLE technology has been all but formally confirmed now that it has a fully working testing facility.
  • Product risk: Another risk to consider is the possibility of dropping lithium prices. Prices for hydroxide, to be precise. This danger arises from the possibility that providers will outstrip demand, causing a decline in the price of the commodities they offer. Standard Lithium, on the other hand, is expected to be able to transform this risk into an asset, as seen by the company's choice to certify its hydroxide output. 

Technical analysis

 SLI stock as per fundamentals gives optimism going forward as per the share price. As can be seen from the chart below, SLI is currently below both short-term (50-day) SMA and long-term (200-day) SMA with an RSI of 49.14. After around 35 percent fall from highs of USD 9.25 set in April, the price is presently consolidating around the USD 5.40 to USD 6.30 range. The price has made higher lows and even RSI shows momentum generating in the price, hence SLI stock is expected to generate a good bullish push soon.

 One Year Technical Chart, as of June 02, 2022. Data Source: REFINITIV, Analysis by Kalkine Group

Stock Recommendation

Over the past six months, SLI's share price has corrected by 41.66%. The stock is currently leaning towards the lower end of its 52-week range of USD 2.97 to USD 12.92. As per technical analysis and the strong fundamentals of the company, the company is expected to generate bullish momentum soon with targets of around USD 7.50, giving an upside potential of 27.55%.

Considering the strong fundamentals, a strong outlook for lithium, a strong balance sheet with almost no debt, associated risks, and technical analysis for SLI stock, we give a "Speculative Buy" recommendation on the stock at the closing price of USD 5.88 as of June 02, 2022, with a double digit upside potential.

Technical Analysis Summary:

*Closing Price as of June 02, 2022.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.