The Galaxy Resources Limited (ASX: GXY) share price was a solid performer on Tuesday, rising almost 1.5% to $2.29.
Despite this gain, the lithium miner's shares have lost almost half their value since this time last year.
Why did the Galaxy share price climb higher?
As well as gaining a boost from improving investor sentiment, Galaxy's shares were given a lift from a positive broker note out of the Macquarie Group Ltd (ASX: MQG) equities desk.
According to the note, the broker has cut its price target down to $2.70 from $3.00 but upgraded the rating on its shares to outperform from neutral.
Despite the price target cut, it still implies potential upside of 18% for its shares over the next 12 months.
Macquarie made the move after a recent update by Pilbara Minerals Ltd (ASX: PLS) revealed that it had experienced increasing demand for its lithium.
This led to the miner signing a memorandum of understand with South Korean conglomerate POSCO to consider a larger jointly owned chemical conversion facility to produce industry leading, high-grade hydroxide and carbonate products.
The two companies had previous agreed on a 30ktpa facility but will now consider increasing it by a third to 40ktpa.
While Pilbara Minerals remains the broker's favourite, it sees value in Galaxy's shares at these levels and considers them a buy.
Macquarie estimates earnings per share of 3.3 cents in FY 2019 and 12.3 cents in FY 2020 for Galaxy. Which means they are currently changing hands at a little over 18x estimated FY 2020 earnings.
Should you invest?
If lithium prices remain favourable then I think Galaxy, Pilbara Minerals, Kidman Resources Ltd (ASX: KDR), and Orocobre Limited (ASX: ORE) could all prove to be good investments.
However, the outlook for lithium is extremely uncertain due to concerns over increasing supply and slowing demand growth.
I would suggest investors wait for their respective half year results next month and see how they are faring in FY 2019 before investing.
