Are Pilbara Minerals shares better value than Allkem right now?

The Pilbara Minerals Ltd (ASX: PLS) share price has risen strongly over the past couple of months. But, Allkem Ltd (ASX: AKE) shares have also increased significantly recently as well.

Since 22 June 2022, Pilbara Minerals shares are up by 72%, with Allkem rising 39% over the same time period.

They are both major ASX lithium players. But there are fairly big differences between them.

Allkem is headquartered in Buenos Aires, Argentina. It has lithium brine operations in Argentina, a hard-rock lithium operation in Australia, and a lithium hydroxide conversion facility in Japan. It also has new project developments underway “across the globe” to enhance its international scale.

Pilbara Minerals says that it owns 100% of one of the world’s largest independent hard-rock lithium operations. It’s located in WA, called the Pilgangoora project. The company is pursuing a growth and diversification strategy to become a low-cost lithium producer and fully integrated lithium raw material and chemical supplier.

Which one is better value?

I suppose value is in the eye of the beholder.

One of the ways to compare businesses is by looking at the price/earnings (p/e) ratio. This tells us the multiple of earnings that each business is trading at.

Using estimates on CMC markets, the Pilbara Minerals share price is valued at six times FY23’s estimated earnings and under nine times FY24’s estimated earnings.

However, looking at the Allkem share price, it’s valued at 10 times FY23’s estimated earnings and around nine times FY24’s estimated earnings.

On an earnings projection, Pilbara Minerals does appear to be cheaper.

What do brokers think of these two ASX lithium shares?

Brokers are thinking that ASX lithium shares typically have attractive outlooks because of the expected growing demand for electric vehicles.

However, some brokers are more optimistic about some ASX lithium stocks than others.

Opinions are very mixed. Macquarie has an ‘outperform’ rating on Pilbara Minerals, with a price target of $5.60. That implies a rise of more than 50% over the next year. Macquarie is also bullish about the next few years due to expectations of strong lithium prices.

However, Credit Suisse currently has a rating of ‘underperform’ on the business, with a price rating of $2.30. That would be a fall of the Pilbara Minerals share price of more than 30%. Higher costs in FY23 is  one of the main factors that the broker is cautious about.

Using those same brokers for Allkem, it’s a similar story.

Macquarie rates Allkem as ‘outperform’ with a price target of $21. That would be a rise of around 50%. While the company is benefiting from high prices, production guidance for FY23 was decreased.

Credit rates Allkem as ‘underperform’, with a price target of just $10.30. That would be a drop of around 25%. The broker noted the decreased production guidance and higher expected costs.

The post Are Pilbara Minerals shares better value than Allkem right now? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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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