Largo Inc.

Largo Inc. (TSX: LGO) is a Canada-based company, which is engaged in the production and supply of vanadium products. The Company is into the development and sale of vanadium-based utility scale electrical energy storage systems to support the planets to renewable energy.

Why should Investor’s exit?

• Lengthy Cash conversion period: The cash conversion period of LGO during Q3FY21 stood 137 days, as compared to the industry median of 52 days. A higher cash conversion period implies that the company is taking higher time to convert its investments in raw materials to cash flows. This is a key concern for the company.

• Higher Inventory days: The average inventory period of LGO during Q3FY21 stood 132.20 days, as compared to the industry median of 84.30 days. A high day’s inventory outstanding indicates that a company is not able to quickly turn its inventory into sales. This is a key concern for the company.

• Unsatisfactory Relative Valuation: On a forward 12-month basis – EV/EBITDA, Price/Cash Flow, and Price/Earnings valuation multiples are relatively overvalued against the industry median.

• Hovering near the upper band of Bollinger band indicator: At the daily price chart, the stock of LGO closed near the upper range of its 20-days Bollinger band, indicting a possible correction from the recent level.        

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

Stock Recommendation

It was another outstanding quarter with demand driving robust growth in revenue, operating margins and EBITDA. Furthermore, its cash cycle days are higher than the industry median, indicating a weak liquidity profile. Moreover, the stock is trading at the stretched valuations on multiple fronts compared to the industry median, raises the concern in the mind of investors. Even the stock's technicals are weak, undermining its price. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of LGO at the last traded price of CAD 13.09 on February 11, 2022.

1-Year Technical Price Chart (as on February 11, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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