American Battery stock is up 40%, but should you really invest ABAT?

American Battery Technology (NASDAQ: ABAT) continues its showcase of extreme volatility following the cancellation of the $57.7 million Department of Energy (DOE) grant last week. 

The funding setback came just as the Nevada-based battery materials company was gaining traction, publishing a positive Pre-Feasibility Study on its lithium project. 

ABAT shares were up 100% on the monthly chart before crashing 57% in just a couple of days following the news. 

However, as of Tuesday, October 21, the American Battery stock is once again soaring, having gained 38.56% on the day and another 2.86% in pre-market, when it sat at $6.90. 

Two things complicate the picture. Namely, ABAT stock is highly sensitive to news and thus extremely volatile, but analysts see the company as too important for the domestic critical mineral supply chain for its success to hinge on a single grant. 

In other words, the question is: Should you invest in American Battery now that it’s skyrocketing again or not?

American Battery remains optimistic

The deal with the DOE was meant to support the construction of a new home-state plant to produce lithium hydroxide for batteries.

According to a filing with the Securities and Exchange Commission (SEC), the company plans to appeal the decision and remains optimistic about its future prospects.

“Regardless of the outcome of the appeal process, the Company intends to move forward with the project without impact to timeline or scope,” the filing said. 

Likewise, the filing stressed that President Donald Trump’s National Energy Dominance Council supported the project, adding that his administration has selected it for expedited permitting. 

American Battery CEO, Ryan Melsert, also expressed disbelief in the department’s decision, especially given its previous support for the initiative.

U.S. technological sovereignty

Whether the appeal is going to be fruitful or not remains to be seen, but the company’s core strategy could work in its favor.

Namely, ABAT is focused on reducing U.S. reliance on foreign, especially Chinese, lithium and localizing the full battery supply chain. 

Considering the ongoing trade wars with China and the Trump Administration’s efforts to streamline domestic production, the approach could indeed entice some change in Washington’s perspective.

​What’s more, the artificial intelligence (AI) sector, now growing at an ever-faster pace, is highly dependent on rare earths for data center operations, as is the electric vehicle (EV) industry, which relies heavily on AI for its autonomous technology and lithium for its batteries. 

Nonetheless, ABAT’s business model could also be a double-edged sword, as it puts a strong emphasis on recycling and clean energy, two sectors the current administration is not putting a ton of resources into.

Is ABAT a buy? 

As can be appreciated from the ongoing discussion, American Battery presents a very complex investment that could go either way, and quickly.

Further adding to the uncertainty is the fact that the stock is currently trading at a price-to-book (P/B) ratio of 8.1x, much higher than the metals and mining industry’s average of 2.4x. 

For companies in the early stages of development, especially those presented as growth opportunities, high metrics such as these tend to imply that investors expect exceptional progress.

However, based on the conflicting data regarding American Battery’s current status in the market, the optimism is not 100% justified. 

Simply put, while the battery maker indeed has the potential to benefit from the growing domestic lithium production demand, it is more likely to appeal to more risk-prone investors willing to battle price fluctuations.

Featured image via Shutterstock