Why Sociedad Quimica y Minera Stock Popped Today

Shares of Chilean lithium mining company Sociedad Quimica y Minera (NYSE: SQM) -- simply "SQM" to its friends -- jumped 4.9% through 12:10 p.m. ET this afternoon on positive news out of Europe.

As Euro News reports, the European Union has prepared a list of 34 raw materials critical to its member countries' economies and deserving of government support. Lithium is on this list, alongside metals such as cobalt and magnesium and various rare earth elements -- all essential components of electric car batteries and electric motors.

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Europe and Chile

A 2024 law calls upon the E.U. to locally mine 10% of its annual needs for each of these critical metals, process 40%, and recycle 25%, all by 2030. That doesn't sound like great news for SQM, which of course mines its lithium in Chile for export abroad (including to the E.U.). But as Euro News points out, it's far from certain that Europe will be able to hit its target by the deadline, especially as regards the mining component.

Processing and recycling might prove easier, especially if Europe is able to get its lithium mined abroad -- in Chile, for example.

And so today's news actually might be a good catalyst for SQM, indicating growing demand in Europe for its primary product.

Is SQM stock a buy?

That doesn't necessarily mean you should rush out and buy SQM stock, however.

Valued at $8.8 billion in market capitalization, SQM is a profitable company, having earned more than $600 million over the past year. That works out to a seemingly attractive 15 P/E ratio. Free cash flow at the company, however, is much weaker than reported earnings -- only $364 million, resulting in a more expensive price-to-free cash flow ratio of 24.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.