Why Shares of Lithium Americas Are Plunging Today

What happened

While the S&P 500 and Dow Jones Industrial Average are both sliding lower today, shares of Lithium Americas (LAC) are outpacing the downward slide in the market writ large. Addressing the company's recent deal with Arena Minerals, an analyst from B. Riley seems to be unenthusiastic about the transaction, electing to keep the same price target and rating on the stock that he had prior to the announcement.

As of 3:32 p.m. EST, shares of Lithium Americas are down 3.8%, recovering slightly from their earlier slide of 5.7%.

So what

Expecting the scale of Pastos Grandes to balance out equity dilution in the days ahead, Matthew Key, an analyst at B. Riley, maintains a buy rating on shares of Lithium Americas and a price target of $39.

On Tuesday, Lithium Americas announced that it had entered into a definitive arrangement agreement with Arena Minerals to acquire all outstanding shares that Lithium Americas does not already own. Addressing the merits of the deal, Jonathan Evans, CEO of Lithium Americas, stated,

This transaction will consolidate the highly prospective Pastos Grandes basin, and creates an exciting opportunity for Lithium Americas, a Canadian incorporated and headquartered company, to add incremental growth in one of the most important lithium producing regions in the world.

Lithium Americas projects the transaction will close in the third quarter of 2023.

Now what

While the transaction with Arena Minerals offers great potential to increase value in Lithium Americas' portfolio, investors seem skeptical. Shares of Lithium Americas dropped on the day of the announcement regarding the entrance into the agreement. With the analyst's unchanged price target, moreover, investors continue to remain unimpressed -- pessimistic, even, that the deal will move the needle for this lithium company that's still in the pre-revenue phase of its development.

For those who have had Lithium Americas on their radar, the recent sell-off provides a good buying opportunity. However, plenty of risks remain, so investors should allot their positions accordingly if they decide to click the buy button.