Canada-based Li-Cycle Holdings (NYSE:LICY) recycles lithium-ion batteries. This might, at first glance, seem like an interesting business concept. Yet, in Li-Cycle’s case, there’s a wide gulf between concept and execution, especially from a financial standpoint. LICY stock gets an “F” grade and isn’t recommended.
It’s easy to see why some stock traders might be intrigued with Li-Cycle. Maybe, the market for electric vehicle (EV) battery recycling will explode in the coming years.
Or, maybe it won’t – there are no guarantees. Besides, Li-Cycle could end up running out of capital before the EV battery recycling industry gains traction. It’s easier to envision an unhappy ending to the Li-Cycle story than a happy one.
LICY Stock’s Slow, Painful Path Toward Zero
While we can’t promise that LICY stock will go to zero, we can observe that it has declined from around $14 in early 2021 to $3 and change.
In 2023 so far, even while the stock market went up, Li-Cycle shares lost significant value.
This is what can happen when speculators bet on an unproven business model. For a small-to-midsize company, Li-Cycle has been overly ambitious. Apparently, Li-Cycle seeks to make waves in North America while also expanding its operations into Europe.
All of this would be fine if Li-Cycle could afford to expand so rapidly. Yet, there a few, if any, signs that Li-Cycle has succeeded thus far from a financial perspective.
Unfortunately, Li-Cycle has a terrible track record of unprofitable quarters with EPS misses. A quick check on Yahoo Finance! reveals that Li-Cycle fell short of analysts’ consensus EPS estimates for the four most recently reported quarters.
Li-Cycle’s Shrinking Capital Position
Now, we’re forming a clearer picture of Li-Cycle’s financial issues. The company’s net income loss has deepened year over year, reaching $35.3 million in 2023’s second quarter.
Also during that time frame, Li-Cycle’s operating expenses increased from $33.3 million in the year-earlier quarter to $46.1 million in Q2 of 2023. Li-Cycle’s management can blame “higher raw material and supply costs” if they want to, but surely the company’s ultra-ambitious global expansion has cost a lot of money and will continue to do so.
So, while Li-Cycle can dream about conquering North America and Europe with its battery recycling technology, it’s troubling to witness the erosion of the company’s capital position.
Specifically, Li-Cycle’s position of cash and cash equivalents has dwindled from $517.9 million in the year-earlier quarter to just $288.8 million in this year’s second quarter.
There’s More Downside Coming for LICY Stock
The point is, don’t get enticed by Li-Cycle’s quest for multi-continent expansion. It’s a nice dream, but Li-Cycle might not have sufficient capital to support the company’s objectives.
Worse yet, it’s not inconceivable that Li-Cycle could run out of money in the coming quarters. In the final analysis, LICY stock gets an “F” grade and is highly susceptible to further deterioration.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.