Solar Recycling And Silver Demand Will Shape Long-Term Earnings Trajectory

Catalysts

About Comstock

Comstock operates capital light platforms focused on industrial scale solar panel metals recycling and renewable fuels, underpinned by a debt free balance sheet.

What are the underlying business or industry changes driving this perspective?

• Although surging global solar deployments and a forecast tenfold increase in U.S. end of life panels support multi year growth for Comstock’s recycling facilities, any delay in customer replacement cycles or slower adoption of recycling mandates could leave new plants underutilized, which could pressure revenue growth and fixed cost absorption.
• Despite structurally higher silver demand from electrification and data center build outs enhancing the value of metals recovered from panels, an eventual normalization or pullback in silver prices would reduce upside from silver rich tailings and could narrow anticipated expansion in net margins.
• While Comstock’s first industry scale solar recycling plant and planned Nevada hub strategy are positioned near the largest U.S. solar markets, slower than expected permitting, community opposition, or logistics bottlenecks at follow on sites could delay capacity ramp and defer the timeline to reach the projected earnings scale.
• Although the downstream opportunity in in house refining of silver, silicon and other specialty metals could significantly upgrade unit economics, the technical, regulatory and capital intensity of building a comprehensive refining solution introduces execution risk that could weigh on long term earnings conversion if timelines slip beyond 2027.
• While Bioleum and the Oklahoma Wisconsin biofuel platform target rapidly growing demand for low carbon aviation and transportation fuels, the heavy project financing needs, potential delays in Series A completion, and uncertainty around policy incentives could constrain consolidated cash generation and extend the path to sustained profitability.

Assumptions

This narrative explores a more pessimistic perspective on Comstock compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Comstock's revenue will grow by 254.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -1894.1% today to 39.3% in 3 years time.
• The bearish analysts expect earnings to reach $48.4 million (and earnings per share of $0.89) by about December 2028, up from $-52.6 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $99.8 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 6.3x on those 2028 earnings, up from -3.8x today. This future PE is lower than the current PE for the US Oil and Gas industry at 12.8x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A tighter than expected global supply and demand balance for silver and sustained high silver prices, driven by long-term electrification, solar and data center build outs, could materially lift the value of Comstock's silver rich tailings and future refined metals. This could result in structurally higher revenue and net margins than implied by a flat share price outlook.
• The exponential growth in installed solar capacity and the forecast increase from about 3 million to 33 million U.S. end of life panels by 2030 may enable Comstock to rapidly ramp throughput across multiple plants. This could potentially drive revenue and earnings growth that outpaces current market expectations.
• If Bioleum successfully scales its high yield renewable fuel technology, secures further Series A funding on attractive terms and benefits from strong policy support for low carbon fuels, the value of Comstock's large preferred equity stake could rise significantly. This could improve consolidated earnings and asset value.
• Monetization of the Dayton and broader Comstock mining district through a sale, joint venture or royalty structure at higher precious metal prices could unlock substantial cash flows and balance sheet value. This could positively impact earnings and the perceived intrinsic value of the equity.
• Successful execution of the Nevada Sierra Springs data center and land strategy in one of the fastest growing hyperscale data center hubs, supported by long term demand for compute and off grid renewables, could create an additional high value asset platform that bolsters future revenue and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Comstock is $4.0, which represents up to two standard deviations below the consensus price target of $5.38. This valuation is based on what can be assumed as the expectations of Comstock's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.75, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $123.3 million, earnings will come to $48.4 million, and it would be trading on a PE ratio of 6.3x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $3.94, the analyst price target of $4.0 is 1.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.