Chinese lithium-ion battery manufacturer CBAK Energy Technology (NASDAQ:CBAT) is riding a wave of interest in electric vehicles and clean energy generally. Prospective CBAT stock traders might be interested to know that CBAK became the first Chinese lithium battery company to get listed in the United States.
In other words, CBAK was an early entrant in the now red-hot field of lithium battery production. That works in the company’s favor. And, the trading community has bid the CBAT stock price up by hundreds of percentage points in 2020.
That’s not the end of the story, though. CBAT stock has retraced from its peak and now appears to be trending downward. There’s an old saying that the trend is your friend. Yet, in this instance, the downtrend in CBAT might be more of an enemy than a friend.
Should long-term CBAT stock holders be worried? This is a legitimate question, so let’s focus on where CBAT stands and where it might be headed in an era that might someday be looked back on as the clean-energy renaissance.
A Closer Look at CBAT Stock
Unfortunately, there is a classic “pop and drop” formation in CBAT stock in progress. This is typical when the hype surrounding a stock builds too much, too quickly.
The price action of CBAT stock should serve as a lesson in what can happen when you chase an asset after it has run very high. Seasoned traders know that “trees don’t grow straight to Heaven,” meaning that a stock can’t just endlessly continue upward.
At the beginning of September, CBAT stock was trading at just 75 cents. By Oct. 5, the buyers had bid the share price up to nearly $5. At that point, the right move was to take one’s profits and then watch from the sidelines.
As it turns out, CBAT stock then tumbled toward the $2.50 area. So, the share price basically got cut in half. CBAT is up to $2.64 on the first day of September and is trading around $3.
But hey, at least new investors can get in at a more favorable price point. Just be aware that CBAT stock is volatile and, as we’ve learned, is prone to sustained moves in both directions.
The Bull Case for Lithium
Prospective CBAT shareholders should be glad to know that lithium battery technology seems to have a champion in the U.S. government. Specifically, the U.S. Department of Energy sees lithium batteries as a clean, efficient power source.
As the Energy Department mentions in its “Alternative Fuels Data Center,” lithium batteries are used in hybrid electric vehicles, plug-in hybrid electric vehicles and all-electric vehicles.
This, in my opinion, is why CBAT stock could be considered a “picks and shovels” type of investment. Instead of betting on an EV company, traders can invest in a company that provides an essential component to electric car and truck manufacturers.
A Hyper-Growth Market
Moreover, the Energy Department lists a number of advantages of lithium ion batteries:
- High power-to-weight ratio
- Good high-temperature performance
- High energy efficiency
- Low self-discharge
- Most components of the batteries can be recycled
Furthermore, the potential for robust profits is there as the global lithium-ion battery market was valued at a whopping $36.35 billion last year, according to Verified Market Research.
And perhaps the best is yet to come. This niche market is expected to reach $115.98 billion by 2027, with an impressive compound annual growth rate of 15.6% from 2020 to 2027.
There aren’t a whole lot of pure-play lithium battery stocks out there. CBAT is a solid choice in this niche as CBAK Energy Technology is preparing to construct a new production line for its large-sized cylindrical tabless battery. Encouragingly, mass product delivery for the battery is slated for the first half of 2021.
The Bottom Line
I’ll grant that the price action of CBAT stock may be a cause for concern. The bulls will definitely want to regain control before the share price plunges further.
Yet, value seekers can appreciate the opportunity to own shares of CBAT stock at a reduced price. Plus, with the lithium battery industry poised for substantial growth, the long-term outlook is bright for CBAK Energy Technology.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.