Despite dropping 17% in April, is the Pilbara Minerals share price still overvalued?


The Pilbara Minerals Ltd (ASX: PLS) share price has been at the forefront of investor attention this month.

Despite travelling 3.46% higher to $2.69 yesterday, the company’s shares have plummeted in recent times. In fact, for the month of April, its shares are down 17%.

Below, we take a look at what Michelle Lopez, head of Australian equities at Aberdeen Standard Investments had to say.

Are Pilbara Minerals shares too expensive?

When the Pilbara Minerals share price continued to power ahead in early 2022, there was a consensus among investors that it could be overvalued.

As Ms Lopez explains, a few weeks ago she would have agreed with the above notion. However, after taking a step back while the company’s shares cooled off this month, her view has changed.

Ms Lopez noted that the market is “constructive on lithium on a medium-longer term view because of the structural demand drivers”.

With less than 10% of electric vehicle penetration, the current battery production run rate to meet production could be insufficient. This is because “inventory remains tight across the supply chain”, Ms Lopez said.

Nonetheless, lithium is available almost anywhere in the world and there are a number of companies developing their lithium projects.

Although it is worth remembering it is a slow process to build a lithium and bring it up to production. On average it takes around 4 to 7 years from concept to production. This includes engineering and regulatory approvals, project evaluation and feasibility studies, as well as construction of new production plant.

Given that it isn’t easy, Ms Lopez believes that lithium demand will outstrip supply over the investment period.

Therefore, she rates Pilbara Minerals shares as not overvalued.

In particular, Ms Lopez stated she was attracted to the company’s asset position being low on the cost curve.

In addition, Pilbara Minerals can grow production organically with its wholly-owned Pilgangoora Lithium-Tantalum Project in Western Australia.

Furthermore, Ms Lopez commented that in light of the recent volatility, she has been topping up when valuations are attractive.

Regardless of its recent declines, the Pilbara Minerals share price has accelerated by 130% in the past 12 months.

The company’s shares reached an all-time high of $3.89 in mid-January before sharply pulling back to December 2021 levels.

On valuation grounds, Pilbara Minerals presides a market capitalisation of roughly $8.01 billion.

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