Where next for the Galaxy Resources Limited share price?

The Galaxy Resources Limited (ASX:GXY) share price is up 4% today. Can it still go higher?

a woman

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In afternoon trade the Galaxy Resources Limited (ASX: GXY) share price has continued its strong run and is higher by 4% to $1.93.

This means that the lithium miner's shares have now gained over 14% in the last 30 days.

Can its shares still go higher?

Whilst this is undoubtedly a strong gain, it is worth noting that its shares are still down by approximately 26% year-to-date and arguably trading at what I would consider to be a very cheap price.

I'm not the only one that believes this to be the case. A research note out of Citi earlier this week revealed that the investment bank has a buy rating and massive $2.70 price target on Galaxy's shares.

That equates to potential upside of almost 40% from the current share price and it's not hard to see why Citi believes Galaxy's shares can climb significantly.

Thanks partly to increased production at Mt Cattlin and better pricing, Citi expects Galaxy to deliver earnings per share of 27 cents in FY 2018.

This means that Galaxy's shares are changing hands at a little over 7x estimated FY 2018 earnings. Even for the resources sector I feel this is cheap.

Is it a buy?

Whilst I think that Galaxy is a strong buy and one of the best options in the resources sector, this is all based on forecasts that the demand for lithium will continue to outstrip supply for some time to come.

If in fact the expected increase in demand for lithium to be used in the batteries of electric vehicles, smart devices, and renewable energy fails to materialise or extra unforeseen supply hits the market in the future, then the high lithium prices that Galaxy enjoys and expects to enjoy for the foreseeable future could fall sharply.

For that reason Galaxy and its industry peers Orocobre Limited (ASX: ORE), Kidman Resources Ltd (ASX: KDR), and Pilbara Minerals Ltd (ASX: PLS) ought to be classed as high risk investments.

Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. 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 Bruce Jackson.

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