Furthermore, the lithium-ion battery market alone, valued at $54.4 billion in the U.S. in 2023, is projected to grow at a compound annual growth rate (CAGR) of 20.3% through 2030 €‹.
In addition to lithium-ion, solid-state batteries are gaining traction due to their potential for higher energy density and safety improvements. Companies investing in these technologies are set to benefit as the market expands. Moreover, renewable energy storage, an integral part of the battery market, is growing rapidly.
So there are a lot of strong reasons for investors to consider a sizable investment in undervalued battery stocks, as I believe we have only just started to tap into their long-term potential.
QuantumScape (QS)
QuantumScape (NYSE:QS) is a leading developer of solid-state lithium-metal batteries for electric vehicles (EVs).
However, QuantumScape is still a development-stage company and is not generating revenue yet. The company reported a significant net loss of $120.6 million in Q1 2024, missing estimates. While losses are expected for a company at this stage investing heavily in R&D, the large miss indicates challenges.
While QuantumScape has made progress on its solid-state battery technology, with developments like shipping Alpha-2 prototype cells, significant uncertainty remains about the path to commercialization and profitability. The company projects having enough cash to fund operations only until the second half of 2026. Revenue is not expected until 2025, and even then, the average estimate is only $4.8 million, growing to $49.5 million in 2026.
But with all of these risks in mind, I still think that QS warrants at least a small investment thanks to it trading in penny stock territory. It may also be a potential acquisition target if its R&D efforts pay off as expected.
Albemarle (ALB)
Albemarle (NYSE:ALB) is the largest lithium producer globally, with a broad portfolio of lithium brine and hard rock mining operations.
Analysts have an average price target of $154 for ALB, which represents significant upside potential of 55.3% from the current price. The most bullish analyst sees the stock rising to $280, while even the most bearish target ($81) is only 18.3% below current levels.
Albemarle is highly profitable, generating $325.76 million in net income and $2.77 in EPS over the last 12 months on $8.40 billion in revenue. While margins contracted recently, likely due to lithium price volatility, the company has a long history of strong profitability. Analysts expect a strong rebound in EPS to $7.97 next year and $11.29 by 2026 as lithium markets stabilize.
Lastly, ALB’s forward price-to-earnings (P/E) ratio of 26 is lower than its trailing P/E of 35.51, since earnings are expected to grow. While not cheap in absolute terms, the valuation may be attractive relative to Albemarle’s long-term growth potential in the EV battery supply chain.
Solid Power (SLDP)
Solid Power (NASDAQ:SLDP) is another early-stage company focused on developing solid-state battery technology. The company is not yet generating meaningful revenue, with only $19.57 million in revenue over the last 12 months. The company reported a large net loss of $67.60 million and negative operating cash flow of $67.70 million, reflecting significant cash burn at this stage.
The company’s technology, while promising, is still unproven at commercial scale. There is significant technological risk in whether Solid Power can successfully develop and commercialize its solid-state battery technology, similar to the situation that QS stock finds itself in. However, I think that SLDP could be a winner.
Solid Power reported revenue of $6 million in Q1 2024, a substantial increase of $2.2 million compared to Q1 2023. This growth was driven by continued execution under joint development agreements and other collaborative arrangements. Also, Solid Power highlighted strong early execution on its technology transfer for SK On, expanded electrolyte sampling with shipments to multiple potential customers and remains on track to deliver A-2 Sample cells by the end of the year. This then positions it as one of those undervalued battery stocks to buy.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.