Month: October 2022

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Netflix‘s (NASDAQ: NFLX) stock surged 14% on Wednesday, Oct. 19, following Tuesday evening’s release of its third-quarter earnings report. The streaming video giant’s revenue rose 6% year-over-year to $7.93 billion, which beat analysts’ expectations by $90 million. Its earnings per share declined 3% to $3.10, but still cleared the consensus forecast by $0.97.

More importantly, Netflix gained 2.42 million paid subscribers sequentially, which finally ended its two-quarter streak of subscriber losses. Do those positive developments indicate it’s finally safe to buy Netflix’s stock, which remains about 60% below its all-time high from last November?

Its revenue growth is still decelerating

Back in April, Netflix rattled investors with its first sequential loss of subscribers in over a decade. It mainly blamed that slowdown on tougher competition in the streaming space, the impact of the Russo-Ukrainian war, and users sharing their passwords. It said it would crack down on those shared passwords and roll out a cheaper ad-supported tier to attract new users, but those moves also suggested it was running out of ways to gain new subscribers.

During the third quarter, Netflix’s number of paid subscribers grew again as hit shows like Stranger Things, Monster: The Jeffrey Dahmer Story, Extraordinary Attorney Woo, The Gray Man, and The Sandman drew in more viewers. It expects its number of paid subscribers to grow 2% sequentially (2.6% year-over-year) to 228 million in the fourth quarter.

Metric	Q3 2022	Q2 2022	Q1 2022	Q4 2021	Q3 2021
Paid Subscribers (Millions)	223.1	220.7	221.6	221.8	213.6
Growth (YOY)	4.5%	5.5%	6.7%	8.9%	9.4%
Revenue (Billions)	$7.93	$7.97	$7.87	$7.71	$7.48
Growth (YOY)	5.9%	8.6%	9.8%	16%	16.3%

Data source: Netflix. YOY = Year-over-year.

Netflix’s stabilizing subscriber growth is encouraging, but its revenue growth continues to cool off. It attributes that slowdown to its growing dependence on international markets, which generate lower revenue per subscriber than its slower-growth U.S./Canada market, as well as the rising dollar’s impact on its overseas revenue.

That’s why it only expects revenues to rise less than 1% year-over-year — and decline nearly 2% sequentially — to $7.78 billion in the fourth quarter. However, that amounts to a 9% year-over-year increase under constant currency terms.

To stabilize its revenue growth, Netflix will start rolling out its cheaper “Basic with Ads” tier, which costs $6.99 per month in the U.S., on Nov. 3. That tier, which costs $1 less than Disney‘s (NYSE: DIS) ad-supported Disney+ and Hulu tiers, will stream videos at up to a 720p resolution and feature about five to five minutes of commercials each hour.

During the conference call, chief operating officer and chief product officer Greg Peters predicted the cheaper ad-supported tier would “bring in a lot more members” and become a “significant incremental revenue and profit stream” over the long term. However, Netflix’s fourth-quarter revenue suggests those tailwinds won’t really kick in by the end of the year. Those currency exchange headwinds are powerful.

Its margins are still shrinking

Netflix’s operating margin of 19.3% in the third quarter beat its own forecast of 16%, but still contracted sequentially and year-over-year. It attributed most of its year-over-year decline to the appreciation of the U.S. dollar — which will likely continue as interest rates continue to rise.

Metric	Q3 2022	Q2 2022	Q1 2022	Q4 2021	Q3 2021
Operating Margin	19.3%	19.8%	25.1%	8.2%	23.5%
Free Cash Flow (Millions)	$472	$13	$802	($569)	($106)
EPS Growth (YOY)	(3%)	8%	(6%)	12%	83%

Data source: Netflix.

It expects that pressure, along with the infrastructure investments related to its new ad-supported tier, to reduce its operating margin to just 4.2% in the fourth quarter. It also expects its earnings per share to plummet 73% year-over-year.

Netflix didn’t provide an exact fourth-quarter estimate for its free cash flow (FCF), which fluctuates wildly based on its production of new content. But it expects to generate about $1 billion in FCF for the full year, which implies its FCF will likely turn negative again in the fourth quarter (since it already generated $1.3 billion of FCF in the first nine months).

Its valuations are debatable

Analysts expect Netflix’s revenue to rise 7% this year as its earnings decline 10%. Next year, they expect revenue and earnings to grow 8% and 6%, respectively, assuming it continues to gain new subscribers and expand its ad-supported tier.

Based on those estimates, Netflix trades at 21 times forward earnings — which is historically cheap but doesn’t make it a bargain compared to traditional media companies. For example, Disney trades at 18 times forward earnings, while Paramount Global (NASDAQ: PARA) has an even lower forward price-to-earnings ratio of eleven.

At its current growth rates, I believe Netflix deserves to trade closer to its legacy media counterparts — which also offer streaming video platforms — instead of higher-growth tech companies. Therefore, I still don’t think Netflix is a compelling buy after its latest earnings beat, especially as its revenue growth cools off and its operating margins continue to shrink. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is Netflix stock a buy now? appeared first on The Motley Fool Australia.

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More reading

• Why Netflix stock rocketed higher Wednesday
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Leo Sun has positions in Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Netflix and Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool Australia has recommended Netflix and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.   

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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A2 Milk Company Ltd (ASX: A2M) shares have been strong performers in recent months.

Since this time in July, the infant formula company’s shares have risen 19% to $5.34.

As a comparison, the ASX 200 index has lost 1.6% of its value during the same period.

In light of this, it appears that expectations are high for the company’s first half results and investors may be anticipating a solid trading update at next month’s annual general meeting.

What is expected at the A2 Milk AGM next month?

At the end of September, A2 Milk released a trading update which revealed that it had started FY 2023 positively. It advised:

The Company has made a positive start to the year, with 1Q23 sales expected to be marginally ahead of plan primarily reflecting the benefit of favourable foreign exchange driven by depreciation of the New Zealand Dollar (NZD). Due to the currency impact on cost of sales and cost of doing business, notwithstanding the benefit to sales, 1Q23 EBITDA is expected to be in line with plan.

Investors will no doubt be hoping that the company’s trading has remained the same or even improved since this update. The latter would likely given A2 Milk’s shares a real boost.

Though, it is worth noting that the continuation of its solid performance isn’t a given. Management has warned investors that its performance could be impacted positively and negatively from a range of factors. These include:

COVID-19 impacts on supply chain, SAMR registration process timing, volume impact of price increases, foreign exchange movements, cross border trade, changes in the regulatory environment, and commodity prices.

What else?

In addition, this week the company pledged to amend its remuneration process after investor backlash. It stated:

To further align to recent practices for New Zealand and Australian executive remuneration, the Board is reviewing the Company’s remuneration practices. While the review is still ongoing, the Board is already committed to making certain changes in FY23.

While these changes won’t be relevant to next month’s annual general meeting, the fact that it is taking action could stop shareholders voting down its remuneration report this year.

Are A2 Milk shares a buy?

There aren’t many brokers out there that are bullish on A2 Milk’s shares, but one that remains positive is Bell Potter.

A note from earlier this month reveals that its analysts have a buy rating and $6.60 price target.

This implies potential upside of almost 24% for investors over the next 12 months.

The post Looking to buy A2 Milk shares? Here’s what to watch at next month’s AGM appeared first on The Motley Fool Australia.

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• Is the A2 Milk share price a buy ahead of next month’s AGM?
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Core Lithium Ltd (ASX: CXO) share price has rebounded from early morning losses and is currently up 0.2%.

Shares in the ASX lithium stock closed yesterday at $1.33. In late morning trade shares are swapping hands for $1.34.

The company has been a major beneficiary of soaring lithium prices amid a battery manufacturing boom to power the rapid growth in global EV markets.

Year to date that’s seen the Core Lithium share price rocket an eye-popping 110%. And this is in a year where the S&P/ASX 200 Index (ASX: XJO) has dropped 12%, no less.

But could Core Lithium’s dream run be at risk from the underwhelming quarterly results reported by EV giant Tesla Inc (NASDAQ: TSLA) yesterday?

Could Tesla impact the Core Lithium share price surge?

The Tesla share price closed down 6.7% yesterday after the company’s quarterly revenues came in shy of consensus expectations. The Tesla share price is now down just over 48% this calendar year.

Core Lithium, as you may recall, executed a legally binding term sheet with Tesla for the supply of lithium spodumene concentrate.

The deal, announced on 2 March this year, is for 110,000 tonnes of lithium spodumene concentrate over a four-year period, sourced from its Finniss Lithium Project, in the Northern Territory. The Core Lithium share price leapt 11% on the day of the announcement.

Commenting on the agreement at the time, managing director of Core Lithium, Stephen Biggins said, “Tesla is a world leader in electric vehicles and its investment in offtake and interest in our expansion plans for downstream processing are very encouraging.”

Indeed. Tesla is a world leader in EVs. Therefore, its disappointing quarterly earnings could be portending a slowdown in global EV markets and lithium demand, potentially throwing up some headwinds for the Core Lithium share price.

China’s slowing growth in the spotlight

According to Eliot Hastie, markets analyst at Australian digital brokerage Stake, “Some analysts believe that softening demand is the primary concern, with sales in China – Tesla’s biggest market – having slowed due to rising competition and a poor macroeconomic landscape.”

“Tesla still makes up just under a fifth of all global battery-only electric vehicles sales, so it’s a significant sentiment driver for Australian lithium stocks,” Hastie added. “The brand’s earnings could be seen as a negative sign for lithium demand in the short term by some, but the need for this commodity is still predicted to increase exponentially over the long term.”

A slowdown in China could indeed impact EV demand from the world’s most populous nation. While that could see a short-term dip in lithium prices, the longer-term outlook remains quite strong.

According to the Department of Industry Science and Resources’ latest quarterly Resources and Energy Report, “lithium exports are now forecast to rise by over 180% to $13.8 billion in 2022-23”.

Hastie notes the Core Lithium share price will be on watch next Wednesday, 26 October. That’s when the company is set to agree on the specific terms of its offtake agreement with Tesla.

The post Is the Core Lithium share price at risk following Tesla’s disappointing earnings? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Warren Buffett, the ‘Oracle of Omaha’ and the man behind Berkshire Hathaway Inc (NYSE: BRK), is often heralded as the best investor of all time.

And if I were a few short decades from retirement with little to no cash in the bank, I’d turn to his wisdom to help grow wealth on the ASX.

The billionaire’s company offered investors an annual return of around 20% between 1965 and 2021.

That would have turned a $1,000 investment into around $28.5 million over the 56-year period – the power of compounding, folks.

So, what advice has the apparent guru offered over the years that might help an investor build up a nest egg over the age of 40 (potentially using ASX shares)? Keep reading to find out.

Buffett wisdom to help build wealth after 40

Choose wisely

A book could be ­­written on how to pick a stock to invest in – and many have been. But Buffett’s approach is a simple one.

He doesn’t rush into any and all investments, rather he takes time to evaluate and understand a business and its prospects. That’s how he finds the big winners.

Following that advice means an investor with no understanding of a particular sector or company would either need to get acquainted with it before buying in or staying clear.

Buffett is also said to have advised that someone looking to invest do so as if they could only make 20 investments in their lifetime.

Being selective about which shares he buys, and truly knowing the business behind it, is one way in which the billionaire has built his wealth.

Derisk, derisk, derisk

Buffett’s relationship with risk is a complicated one. He once famously said:

We think diversification ­­– as practiced generally – makes very little sense for anyone that knows what they’re doing.

However, to diversify a portfolio is to reduce risk. That’s because no one (or two, or three) ASX shares or sectors can be guaranteed to gain.

Buffett is also widely quoted as saying his first rule to investing is don’t lose money. His second rule? Don’t forget rule No. 1.

So, what Buffett might have meant, is to advise investors not to mindlessly build a huge portfolio purely to diversify. As noted above, the oracle advises people to invest wisely.

If I were aiming to build up my nest egg, beginning at 40, I would be deliberately and strategically (and reasonably) diversifying my ASX portfolio.

Time in the market > timing of the market

Buffett has previously said he doesn’t put much thought into what the market is doing at any particular time.

Additionally, the power of Buffett’s best friend, compounding, takes time.

Therefore, Buffett looks for businesses he believes to be winners and doesn’t attempt to pick the bottom. He once said, courtesy of CNBC:

If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do.

I believe waiting to buy into a good investment because of what the broader market is doing could delay future rewards.

The post No savings at 40? I’d use the Warren Buffett method to build wealth appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Rio Tinto Limited (ASX: RIO) share price is on course to end the week in the red.

In morning trade, the mining giant’s shares are down almost 1% to $91.50.

This means the Rio Tinto share price is now down over 5% this week after investors responded negatively to the miner’s quarterly update.

Is the Rio Tinto share price good value?

Analysts at Morgans believe investors should take advantage of the weakness in the Rio Tinto share price.

According to a note, the broker has retained its add rating and $108.00 price target on the company’s shares.

This implies a potential 12-month return of 18% for investors before dividends and 24% including them.

What did the broker say?

Morgans was disappointed with the miner’s quarterly update and highlights that it was a reminder that that “there are no quick fixes to Rio Tinto’s productivity issues across its global operations.”

It also notes that the company has downgraded its guidance for iron ore shipments and refined copper production.

Nevertheless, this isn’t enough to change the broker’s view than Rio Tinto would be a great option in the resources sector right now. Particularly given how immaterial these downgrades are to the company’s long term outlook.

It explained:

The operational weak-points and guidance cuts are disappointing, but they alone are not material to RIO’s long-term fundamentals. Instead we remain focused on whether RIO can achieve sustainable operating changes to solve the productivity issues across its global business. We think that lasting change, especially to productivity in a business this scale, is not something that can realistically happen quickly with weak quarters like 3Q22 likely to continue to occur in the meantime.

Putting the 3Q22 result into perspective, we still see RIO boasting solid earnings quality, dividend yield, balance sheet strength and trading at a discount to our $108.00 Target Price. We maintain our Add rating.

The post Broker says Rio Tinto share price is trading at a discount appeared first on The Motley Fool Australia.

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More reading

• ASX dividend shares ‘likely to remain attractive’ despite rising bank deposit rates: expert
• Rio Tinto share price has 20% upside and 7% dividend yield: Goldman Sachs
• Top brokers name 3 ASX shares to buy today
• Why Adbri, Rio Tinto, St Barbara, and Whitehaven Coal shares are dropping today
• Rio Tinto share price higher despite mixed Q3 update

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Plenty of eyes are on the banking space as the majors get a taste for Tyro Payments Ltd (ASX: TYR). Though, it hasn’t yet been confirmed whether the Commonwealth Bank of Australia (ASX: CBA) shares an interest in acquiring the payment terminal provider.

While CBA’s interest remains unconfirmed, it might be worthwhile exploring what Australia’s biggest bank could stand to gain if it made a beeline toward Tyro.

Let’s take a closer look.

Beefing up business banking

Rising interest rates might be boosting the net interest margin of ASX bank shares, but it also means a smaller appetite for home loans. As rates are expected to rise into next year, banks have the difficult task of determining how to increase profits as fewer loans to buy a home are signed off.

According to CBA’s 2022 annual report, around 51% of the company’s cash net profit after tax (NPAT) was derived from retail banking services. That means CBA shares hold a large exposure to the mortgage market and will likely need to look to other lending areas to maintain growth.

That’s where good ole’ business lending comes in. In FY22, business banking made up approximately 31% of CBA’s cash NPAT. No doubt, the banking giant will look to go toe-to-toe with the likes of National Australia Bank (ASX: NAB) and gain market share… enter scene Tyro Payments.

Tyro could make or break CBA’s market share

Tyro has grown to be a formidable competitor to the major incumbents over the years. According to its FY22 investor presentation, the fintech company now has 109,000 EFTPOS terminals across the country.

Importantly, the humble payment terminal is considered to be the ‘foot in the door’ for landing a business’s banking needs. Tyro proved this to be the case in FY22, growing its loan originations by a whopping 283.4% to $99.07 million.

This figure is rather paltry compared to the Commonwealth Bank’s last recorded $14.1 billion in business lending. Though, the market opportunity is what might have the major bank licking its lips.

As depicted above, CBA is currently the market leader in EFTPOS terminals in Australia. However, if Westpac Banking Corp (ASX: WBC) or NAB were to get ahold of Tyro, this would quickly change.

In the case of NAB, an additional 109,000 terminals from Tyro would take its total to 264,000 — dethroning CBA’s leading market share with 244,000.

Potential hurdles

Finally, if CBA does throw its hat in the ring for Tyro Payments, it might gain the attention of the Australian Competition and Consumer Commission (ACCC).

Despite the competitive payments landscape, with the entrance of international tech companies such as Block Inc (ASX: SQ2), the corporate watchdog may not be impressed with CBA owning a ~37% share of EFTPOS terminals in Australia.

For now, we will have to wait and see what offers arise. However, we know that it will need to be more than $1.52 — as per Mike Cannon-Brookes’ arrangement — if it is to be considered.

The CBA share price is down 4% compared to a year ago, currently residing at $99.30.

The post What could CBA shares stand to gain from a Tyro takeover? appeared first on The Motley Fool Australia.

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More reading

• 5 big ASX announcements making news this week
• ASX dividend shares ‘likely to remain attractive’ despite rising bank deposit rates: expert
• CBA share price smashes through $100-mark for first time in 2 months. What’s next?
• CBA shares: Buy, hold, or fold?
• Is the CBA share price a good value buy in October?

Motley Fool contributor Mitchell Lawler has positions in Block, Inc. and Commonwealth Bank of Australia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc. and Tyro Payments. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool Australia has recommended Tyro Payments and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Novonix Ltd (ASX: NVX) share price is falling on Friday.

In morning trade, the battery materials and technology company’s shares are down 2% to $2.22.

This follows the company being quizzed by the Australian share market operator this morning.

What’s happening?

This morning Novonix responded to an ASX Aware Query or please explain request.

The stock market operator highlighted that the Novonix share price rocketed 20% higher on Tuesday from $1.79 to $2.15 despite there being no news.

And then lo and behold, big news was unveiled a couple of days later. That news was of course Novonix being selected for a $240 million government grant.

The response

Novonix admitted that it was aware of the grant selection on 14 October and that “does consider the Information to be information that a reasonable person would expect to have a material effect on the price or value of its securities.”

However, it felt that it was “an incomplete proposal or negotiation” and advised that it was “prohibited from disclosing its selection […] prior to the DOE making a public announcement about the matter.”

In fact, the company was “advised by DOE that failure to abide by this requirement could result in forfeiture of the opportunity.”

Asked why it did not request a trading halt during the interim period, management appeared to suggest that the market should have been expecting this news as “NVX was considered a logical candidate for the grant funding.”

Furthermore, it “had been monitoring information sources for any suggestion that confidentiality in the Information had been lost and watching NVX trading volumes and prices very closely.”

So, following the aforementioned 20% gain by the Novonix share price on Tuesday, it decided to act and requested a trading halt before the commencement of trade on Wednesday. It explained:

NVX noted the increase in NVX trading volume and prices over the course of 18 October 2022 and despite the fact that NVX believed confidentiality in the Information had not been lost, NVX decided that it would be prudent to go into a trading halt from 19 October 2022 in order to manage its continuous disclosure obligations until such time as it was in a position to announce the Information.

The post Novonix share price falls after ASX ‘please explain’ appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Why Challenger, Novonix, Piedmont Lithium, and Woodside shares are racing higher
• Novonix share price rockets 26% on $240m US Government grant news
• Why is the Novonix share price stuck on standby today?
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Liontown Resources Limited (ASX: LTR) share price is up 0.5% in morning trade on Friday.

The ASX lithium stock closed yesterday trading for $1.84 and is currently trading for $1.85 per share.

The Liontown share price has leapt 22% since last Thursday’s close, and handily outperformed the All Ordinaries Index (ASX: XAO) in 2022.

That outperformance has been driven by strong demand and near-record prices for the critical battery metal lithium.

The Liontown share price got a big boost from Tesla in February

Investors were particularly keen earlier this year after Liontown announced it had entered into a binding lithium supply agreement with global electric vehicle (EV) giant, Tesla Inc (NASDAQ: TSLA).

Tesla agreed to purchase lithium spodumene concentrate from Liontown’s $473 million Kathleen Valley Lithium Project, in Western Australia.

The initial five-year agreement, expected to commence in 2024, will see Liontown supply Tesla with 100,000 dry metric tonnes (DMT) of lithium spodumene concentrate in the first year. Tesla agreed to buy 150,000 DMT in the following years.

Liontown shares surged more than 16% on 16 February, the day of the announcement.

Why might Tesla’s results impact Liontown?

Despite some strong annual growth figures, investors were less than impressed with Tesla’s quarterly results, reported yesterday.

The disappointment likely stemmed from the EV giant’s quarterly revenue figures falling slightly short of consensus expectations. Whatever the cause, the Tesla share price closed down 6.7% yesterday, bringing its 2022 losses to a painful 48.2%.

While this doesn’t look to be having any immediate impact on the Liontown share price today, the broader picture could cast a shadow over the medium-term outlook for lithium demand.

According to Eliot Hastie, markets analyst at Australian digital brokerage Stake, “Some analysts believe that softening demand is the primary concern, with sales in China – Tesla’s biggest market – having slowed due to rising competition and a poor macroeconomic landscape.”

Hastie continued:

Tesla still makes up just under a fifth of all global battery-only electric vehicles sales, so it’s a significant sentiment driver for Australian lithium stocks. The brand’s earnings could be seen as a negative sign for lithium demand in the short term by some, but the need for this commodity is still predicted to increase exponentially over the long term.

I think Hastie nails it there with the long-term outlook for lithium demand and prices.

A slowdown in China could impact Tesla and the Liontown share price in the shorter term. But analysts are broadly in agreement that the 10-year global demand outlook for lithium remains very strong as EV markets are forecast to continue growing rapidly.

The post Up 22% in a week, will Tesla’s results slow the Liontown share price surge appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investors shouldn’t obsess about a company’s progress over just a three-month period, but quarterly results are still watched closely for good reason.

They help detect trends and can confirm or refute what stock analysts have been saying about a business’ prospects.

One of the most closely followed stocks is Tesla (NASDAQ: TSLA), and its third-quarter earnings report comes at a transitional time for the company and the entire electric vehicle (EV) sector.

Amidst competition that is ramping up and several other headwinds in the industry, Tesla just gave investors another good reason to think about buying its stock. 

More than just a stock split quarter

One of the highlights for shareholders in Tesla’s third quarter was the 3-for-1 stock split it completed in August. But that didn’t change anything about the business or the company. Investors just found out the details of what it did from its quarterly report, however. 

After its first quarterly drop in net income in the second quarter, the EV trailblazer rebounded with a near-record third quarter. Tesla’s bottom line more than doubled compared to the year-ago period, with $3.3 billion in net income. That was just $26 million shy of the record it set in the first quarter of this year.  

Importantly for investors, Tesla generated $3.3 billion in free cash flow — defined as operating cash flow less capital expenditures — as it is now reaping the benefits of the growth investments it’s been making. That was more than $1 billion more free cash than it generated in the record first quarter. 

Addressing the demand question

Business remains robust for Tesla as well. Some investors have worried about demand destruction as EV competition swells globally. But in the conference call for investors, CEO Elon Musk stated, “I can’t emphasize enough, we have excellent demand for Q4, and we expect to sell every car that we make for as far in the future as we can see.” 

That’s exactly why the company has spent billions to build its two new manufacturing facilities in Texas and Germany, as well as upgrading its Shanghai plant. That China plant now has the ability to produce 1.1 million vehicles annually at full capacity. It closed in on that run rate with a monthly record 83,135 units in September. 

The company has also said its energy division, which includes battery storage and solar rooftops, has more demand than it can supply. Sales from that division represented 5% of total revenue in the third quarter. 

Growth stock valuation

There’s no question the company is performing well, even as it faces supply chain and logistics headwinds.

The company produced 22,000 more vehicles in the third quarter than it was able to deliver due to shipping bottlenecks. Customers will take ownership of those vehicles in the fourth quarter. That issue could cause 2022 deliveries to miss the company’s 50% annual growth target, but it does expect production to still hit that level of growth.

But investors still wonder if the stock is valued appropriately. Its trailing-12-month price-to-earnings (P/E) ratio remains above 60 even as net income has accelerated this year. If the multi-year 50% annual growth level holds, however, that P/E will decline relatively quickly. 

Investors shouldn’t count on any stock to guarantee a certain return over just one or two years. There are too many outside factors like the current supply chain risks.

A visionary leader like Elon Musk has also been aggressive with his predictions. The Tesla Semi truck was first announced nearly five years ago, for example. But that vehicle is now set to begin deliveries next month.

Tesla shares could go lower even after it is down nearly 50% from their highs. But with its promising growth path ahead, long-term investors might want to take advantage of that decline and buy some Tesla stock now. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Tesla’s growth is back on track. Is it time to buy? appeared first on The Motley Fool Australia.

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Howard Smith has positions in Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Allkem Ltd (ASX: AKE) share price is tumbling on Thursday morning.

In early trade, the lithium miner’s shares are down 6% to $14.05.

Why is the Allkem share price tumbling?

Investors have been selling down the Allkem share price this morning following the release of the company’s first quarter update.

For the three months ended 30 September, Allkem delivered group revenue of US$298 million and a cash margin of approximately US$244 million.

This was driven by Olaroz lithium carbonate sales of 3,721 tonnes, generating record quarterly revenue of ~US$150 million with a gross cash margin of 89%, and shipments of 21,215 tonnes of Mt Cattlin spodumene, generating revenue of US$106.7 million with a gross cash margin of 80%.

In respect to its lithium carbonate, management advised that excluding shipments to Naraha, third party sales for the quarter averaged US$43,237 per tonne FOB. Whereas its Mt Cattlin spodemene commanded a price of US$5,028 per tonne CIF for SC 5.4%.

An additional US$35 million of revenue was generated from sales of 59,326 tonnes of low grade spodumene concentrate from pre-existing stockpiles and processing of fine-grained spodumene ore

Where are prices going?

The good news for lithium investors is that Allkem believes that lithium carbonate prices are going higher in the next quarter. It advised:

The lithium carbonate sales price to third party customers for the December quarter is expected to be approximately US$50,000/tonne. After accounting for actual pricing in the September quarter this remains in line with previous guidance of US$47,000/tonne for H1 FY23.

Things aren’t quite as positive for spodumene, with management expecting pricing to be “in line with the September quarter.” Though, this puts it on track to achieve its previous guidance of US$5,000 per tonne for the half.

Costs rising

One negative from the update was news that costs at its Mt Cattlin operation are increasing. After recording a cash cost of US$796 per tonne in the last quarter, its costs are expected to rise 13% to US$900 per tonne for the full year.

This reflects “the current operating environment and mitigation actions, ongoing development of the 2NW pit, lower ore grades of 0.93-0.94% and the associated metrics.”

Though, with a price of US$5,000 per tonne being commanded for its spodumene at present, it still has very high margins.

Management also warned that its other projects could be impacted by cost pressures. It said:

Capital expenditure for James Bay and Sal de Vida remain subject to the same cost pressures that all resource projects are experiencing globally. Allkem will continue to review and monitor the capital cost budgets for all its projects as they progress.

It appears that this could be putting a bit of pressure on the Allkem share price today.

The post Allkem share price tumbles on quarterly update appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Friday
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Motley Fool contributor James Mickleboro has positions in Allkem Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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