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This share could have made you 31x your investment in 3 years

Galaxy Resources Limited (ASX: GXY) is involved in the production of lithium concentrate and exploration for minerals in Australia, Canada and Argentina. Since the beginning of 2015, Galaxy shares have skyrocketed from $0.14c to a record high of $4.46 in January 2018. 

The massive share price run has been largely attributed to the increasing popularity of renewable energy alternatives and the role lithium plays within this industry.  

Lithium ion batteries are a type of rechargeable battery that are commonly used in home electronics. In recent times, there has been an increasing shift towards using these batteries in electric vehicles.   

If you had invested $10,000 in Galaxy shares in January 2015, they would now be worth $240,000. Despite these extraordinary returns, the share price has slipped approximately 25% since the beginning of year and has some investors thinking about topping up at these lower prices. 

Currently, with a market capital of $1.4 billion, Galaxy is projected to have a P/E ratio of 7.6 by the end of the 2018 financial year. Comparatively cheap, with the global lithium ion battery market expected to triple by 2025, Galaxy shares appear to be at bargain prices. 

Agreeing with this sentiment, two brokers have labelled Galaxy as a strong buy with a target price of $4.50 identified. This leaves shareholders with a potential 34% return on investment in the shorter to medium term. 

Alternatives  

If you’re not quite convinced about renewable energy, perhaps you should investigate BHP Billiton Limited (ASX: BHP) or Woodside Petroleum Limited (ASX: WPL). For the 2018 financial year, BHP is expected to increase earnings per share by 33%, whilst Woodside Petroleum projections are 46% higher on their previous year’s earnings. 

Foolish takeaway  

Regardless of which side of the fence you sit on in the renewable energy debate, the benefits of lithium batteries are not mutually exclusive to either industry. As such, given the growth of the renewable energy market and the apparent discount available, I believe Galaxy shares are worth owning, although remember it carries plenty of risks as a price taker on a relatively big valuation.

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Motley Fool contributor Matt Breen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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