Why I think the Pilbara Minerals share price is currently undervalued

Female miner smiling while inspecting a mine site with another miner.Female miner smiling while inspecting a mine site with another miner.

A hot topic in the lithium space — does the Pilbara Minerals Ltd (ASX: PLS) share price represent good value?

Since the release of Goldman Sachs’ bearish analysis on the battery metals market, the lithium miner’s shares have tumbled.

In the past week, Pilbara Minerals shares are down 7%, despite finishing 3.90% higher at $2.13 yesterday. This is in stark contrast to when its shares were trading as high as $3.89 in January this year. They are now down 33% this year to date.

Nonetheless, here are my reasons below why I think the company’s shares are undervalued at the current price.

Is now the time to buy Pilbara Minerals shares?

While the Pilbara Minerals share price has tanked recently, the company has been busy progressing its Pilgangoora Operation in Western Australia.

The flagship project is targeting an expanded combined production capacity across two processing plants. This means roughly 560-580,000 tonnes per annum of spodumene concentrate will be produced from the September quarter of 2022.

That’s no small potatoes, particularly with lithium prices nearing an all-time high of around US$72,000 per tonne.

Year on year, the price for the battery-making ingredient has soared 430% as demand projections are far exceeding future supply to market.

Furthermore, the company’s Battery Material Exchange (BMX) auction has become highly successful.

A broad range of buyers has continued to show strong interest by bidding online for Pilbara Minerals’ spodumene concentrate.

Last month, the results of the fifth auction represented the fourth consecutive increase in spodumene spot sales. This translates to a lucrative additional revenue stream for the company.

However, with Pilbara Minerals shares falling more than 33% in 2022, I believe this could be an attractive investment.

A number of brokers also remain bullish on the company’s share price.

According to ANZ Share Investing, the team at Macquarie put a price target of $3.50 on Pilbara Minerals shares.

In addition, Citi analysts also weighed in, giving their rating of $3.50 per share as well.

Based on the last closing price, this represents an upside of 64% for investors.

Pilbara Minerals share price snapshot

Regardless of the tough month of trade, the Pilbara Minerals share price is up 60% in the past 12 months.

When looking further back, the company’s shares have rocketed from a humble price of 15 cents apiece in March 2020.

On valuation grounds, Pilbara Minerals presides a market capitalisation of roughly $6.10 billion.

The post Why I think the Pilbara Minerals share price is currently undervalued appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has positions in Pilbara Minerals Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. 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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