Liontown Resources (ASX:LTR): Evaluating Valuation After Major Capital Raise and New Share Issuance

Liontown Resources (ASX:LTR) has just concluded a sizable capital raising, securing over A$56 million by issuing more than 76 million new shares at A$0.73 each. Completed follow-on equity offerings often spark debate among investors, especially given their immediate impact on a company's share count and the potential implications for future growth projects. For those watching Liontown’s next move, this capital raise may be interpreted both as a vote of confidence in expansion plans and as a new test of market sentiment.

The timing of this offering is notable. Liontown’s stock climbed 6% over the past day and has increased by 69% in the last three months, outpacing much of the local mining sector. Even over the past year, shares have posted a 25% gain, suggesting ongoing momentum despite the considerable share dilution. This influx of new capital follows a year marked by swings in commodity prices and changing risk perceptions across Australia’s mining space. Liontown has managed to keep investors engaged with its ambitious growth forecasts and improving top-line results.

With new shares entering the market and recent gains accumulating, some may ask whether Liontown is undervalued after the raise or if the market is already factoring in significant expectations for future developments.

Most Popular Narrative: 51% Overvalued

According to analyst consensus, Liontown Resources is currently trading at a significant premium to its fair value. The prevailing outlook suggests that, while the business has compelling growth forecasts, market expectations may have run too far ahead of fundamentals.

"Analysts are assuming Liontown Resources's revenue will grow by 92.7% annually over the next 3 years. Analysts assume that profit margins will increase from -48.8% today to 6.7% in 3 years time."

Curious about what is driving this bold analyst call? The key factor is rapid revenue growth and a turnaround in profitability that is unusual for a miner. You might wonder what profit multiple is being used to justify such a high price. The answer may be surprising, and it is worth exploring how these aggressive targets are combined.

Result: Fair Value of $0.62 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, rising lithium competition and higher underground operating costs could undermine Liontown’s optimistic forecasts. These factors may create headwinds for its revenue and profit outlook.

Find out about the key risks to this Liontown Resources narrative.

Another View: What Does the DCF Model Show?

While analysts think Liontown is expensive based on market ratios, our SWS DCF model suggests a completely different outcome. According to this approach, the shares might actually be undervalued. Can a cash flow view really tell a different story?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Liontown Resources for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Liontown Resources Narrative

If you have a different take or want to dive deeper into the numbers, you can build your own Liontown Resources narrative in just a couple of minutes. Do it your way

A great starting point for your Liontown Resources research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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