ALB Falls 6.7% In A Single Day, Should You Buy The Stock?

We believe there are several things to fear in ALB stock given its overall Weak operating performance and financial condition. This is aligned with the stock’s Low valuation because of which we think it is Fairly Priced. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $9.5 Bil in market cap, Albemarle provides engineered specialty chemicals across lithium compounds, bromine-based fire safety solutions, and catalysts for various industrial applications including chemical synthesis and water purification.

[1] Valuation Looks Low

This table highlights how ALB is valued vs broader market. For more details see: ALB Valuation Ratios

[2] Growth Is Weak

• Albemarle has seen its top line grow at an average rate of 22.4% over the last 3 years
• Its revenues have fallen -33% from $7.5 Bil to $5.0 Bil in the last 12 months
• Also, its quarterly revenues declined -7.0% to $1.3 Bil in the most recent quarter from $1.4 Bil a year ago.

This table highlights how ALB is growing vs broader market. For more details see: ALB Revenue Comparison

[3] Profitability Appears Very Weak

• ALB last 12 month operating income was $-228 Mil representing operating margin of -4.6%
• With cash flow margin of 15.5%, it generated nearly $775 Mil in operating cash flow over this period
• For the same period, ALB generated nearly $-929 Mil in net income, suggesting net margin of about -18.6%

This table highlights how ALB profitability vs broader market. For more details see: ALB Operating Income Comparison

[4] Financial Stability Looks Strong

• ALB Debt was $3.7 Bil at the end of the most recent quarter, while its current Market Cap is $9.5 Bil. This implies Debt-to-Equity Ratio of 38.7%
• ALB Cash (including cash equivalents) makes up $1.8 Bil of $17 Bil in total Assets. This yields a Cash-to-Assets Ratio of 10.4%

[4] Downturn Resilience Is Weak

ALB has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• ALB stock fell 65.2% from a high of $325.38 on 11 November 2022 to $113.26 on 5 December 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $152.39 on 26 December 2023 , and currently trades at $81.08

 
2020 Covid Pandemic

• ALB stock fell 46.0% from a high of $94.31 on 20 February 2020 to $50.90 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 1 September 2020

 
2008 Global Financial Crisis

• ALB stock fell 66.9% from a high of $47.76 on 31 October 2007 to $15.81 on 5 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 5 October 2010

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read ALB Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.