Loop Industries is undervalued, says Paradigm

With strong production economics for its plastics processing plants and a number of joint venture facilities breaking ground, it’s time for investors to get in the loop with Canadian cleantech company Loop Industries (Loop Industries Stock Quote, Charts, News, Analysts, Financials NASDAQ:LOOP).

That’s according to J. Marvin Wolff of Paradigm Capital, who reviewed the latest quarterly results from Loop in a Friday update and reiterated a “Buy” rating and $6.30 target on the stock, good for a implied one-year return at the time of publication of 100 per cent.

Montreal-based Loop Industries, which has a patented technology to supply CPG companies with PET plastic and polyester fibre made from 100 per cent recycled content, announced its first quarter fiscal 2024 results on Wednesday and provided an update on operations.

The company posted an EPS loss of $0.15 per share, with no significant revenue, and reported having $23 million in cash at the end of the quarter. Loop has a strategic partner in SK GeoCentric, with whom it has signed a joint venture to build four commercial manufacturing Infinite Loop facilities for the Asian market by 2030. Loop said the first planned facility in Ulsan, South Korea, is expected to start construction this year and reach completion by the end of 2025.

Loop also has a three-way JV with SKGC and SUEZ, with the group now having chosen Saint-Avold, France, as a site for a Loop Infinite PET plant, with construction to begin in 2025 and commissioning projected for 2027.

“The signing of the joint venture agreement with SKGC in the first quarter marks the next phase in our strategic partnership with them, as we progress towards breaking ground later this year on our Infinite Loop manufacturing facility in Ulsan, South Korea. We are very excited to expand our technology into the Asian market to support our global brand customers by supplying them with Loop branded PET resin and polyester made from 100 per cent recycled content,” said Loop founder and CEO Daniel Solomita in a press release.

Commenting on the fiscal Q1 release, Wolff said the EPS loss of $0.15 per share compared to his estimate of a $0.12 per share loss. The company’s balance sheet needs bolstering, he said, noting that Loop has significantly reduced its burn rate to about $16 million per year. 

“Loop’s unique 100 per cent-recycled product is expected to command a premium price, generating very strong economics, thus achieving a 45–50 per cent EBITDA margin and 20 per cent+ IRRs at each of its production facilities. With an estimated EBITDA generation of $100 million per full-scale plant (assuming 100 per cent ownership), and a goal of six plants by 2030, we see meaningful EBITDA growth over the next decade,” Wolff wrote.

Among the attractions for owning LOOP, Wolff pointed to the strong and growing global market demand for PET waste diversion, the ESG bona fides of the company’s tech and its third-party validation by SKGC’s ten per cent stake in Loop as well as the attractive valuation of Loop shares currently.

“The company and the stock are not known, hence the share price, in our opinion, is undervalued and represents strong upside potential for investors,” Wolff said.