Fertilizer companies might seem to be volatile, but investors looking for growth need to take another look. While the invasion of Ukraine by Russia created a short-term volatile situation, long-term potash is a profit producer. Especially for investors.
In fact, potash fertilizer is now expected to reach a market size of $41 billion by 2030, as demand for the product continues to explode. And if one company is set to soar because of this, it’s Nutrien (TSX:NTR).
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Why potash?
First, let’s look at why potash is such a key tool to the future of fertilizer. This product helps in the overall improvement of plant and shelf life. It holds potassium, which is a key element to fertilizer, yet natural potassium doesn’t exist naturally in the environment. This is because it reacts poorly to interaction with water. Therefore, fertilizer potassium or “potash” is used to put potassium from wood ash back into fertilizer.
As the population of the world now surpasses eight billion, the need for more crop yields and longer shelf life has never been more important. And with arable land shrinking further, as well as climate change affecting growth, companies that produce potash are under huge pressure to get their production to market.
Which is exactly why Nutrien stock should do so darn well.
Production on the rise
Production increased in the last few years after the invasion of Ukraine, while sanctions placed on Russia are increasing the demand for potash elsewhere. Nutrien stock exploded in response, continuing to grow its position as one of the largest potash producers in the world, along with other fertilizers.
This scale and extensive distribution network have created a diversified global portfolio, with acquisitions cementing it further as a leader in the industry. As food demand has only increased, Nutrien stock also has a strong place long-term in the industry.
What’s more, Nutrien stock has been a leader in taking fertilizer into the new age. It has both retail and wholesale operations, as well as online options that exploded during the pandemic. Beyond this, its technological innovations include improvements in productivity, efficiency, and sustainability. These are incredibly important in an area where the more crop produced, the better.
What’s coming
Shares of Nutrien stock peaked at almost $150 per share before falling back. Now, they trade at just $80 per share as of writing. Yet analysts believe the stock has a solid future back in the three-digit range. And its first quarter earnings proved as much.
The company delivered its second highest net earnings of any first quarter on record during its most recent report. Full-year guidance also increased, as the fertilizer benchmark price stabilized. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) reached $1.4 billion in the first quarter, helped by its low-cost production assets and global distribution network. However, this was a decline from the year before, when prices surged because of geopolitical issues.
Now, the company believes prices will stabilize and create more of a stable opportunity for investors. It has since raised its full-year adjusted EBITDA to between $6.5 and $8 billion. So with a dividend yield at 3.51% and trading at 4.7 times earnings, Nutrien stock certainly looks like a stock that’s about to bloom once more.
