We came across a bullish thesis on Intrepid Potash, Inc. (IPI) on Substack by Enterprising Investor. In this article, we will summarize the bulls’ thesis on IPI. Intrepid Potash, Inc. (IPI)’s share was trading at $25.89 as of Feb 14th. IPI’s trailing and forward P/E were 10.30 and 10.11 respectively according to Yahoo Finance.
A farmer holding a handful of potassium chloride-rich soil, surrounded by a lush crop in full bloom.
Intrepid Potash (IPI), with a market cap of $333 million, has experienced significant volatility in recent years. After peaking at $107 in 2022, the stock has fluctuated between $18 and $27 and is currently trading around $25. As the largest U.S. producer of potash, a key fertilizer mineral, Intrepid operates in a highly cyclical market, which has contributed to its inconsistent performance. Potash prices surged in 2022 due to disruptions in supply from Russia and Belarus, but they have since fallen to lower levels. Additionally, potash prices often correlate with the prices of corn and soybeans, which were high in 2022 but have struggled recently, contributing to investor reluctance in the stock.
Intrepid’s business consists of three primary revenue segments: potash sales (45%), its proprietary mineral blend “Trio” (45%), and brine water sales to oil frackers (10%). Revenue has fluctuated greatly, from a low of $150 million in 2020 to a high of $293 million in 2022, with trailing twelve-month revenue at $206 million. The company’s operating income has varied, peaking at $103 million in 2022, but with inconsistent earnings and poor returns on assets, especially in weaker years like 2020, Intrepid has often struggled to generate a stable profit.
Despite these challenges, there are several potential upsides to Intrepid’s story. The company has outlined capital expenditure projects aimed at improving mining efficiency, which could enhance margins once potash prices recover. Additionally, it is exploring lithium mining, though this remains a speculative part of the business at this stage. Another promising development is Intrepid’s oil drilling agreement with an Exxon subsidiary, which resulted in a $50 million payment in 2023 and could generate up to $150 million more, potentially providing a significant boost to its market value.
Financially, Intrepid’s balance sheet is relatively strong, with assets totaling $806 million and liabilities of just $126 million. The company has no debt, which is a positive in the commodity space, and its equity stands at $681 million, or $56.52 per share, offering a substantial discount to its current market price of 0.44x book value. While earnings have been volatile, the company’s solid asset base, along with the potential for potash price recovery, lithium development, and oil deal proceeds, suggest that the stock could offer significant upside if these catalysts materialize.
Intrepid Potash, Inc. (IPI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 6 hedge fund portfolios held IPI at the end of the third quarter which was 10 in the previous quarter. While we acknowledge the risk and potential of IPI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IPI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.