Up 50% in a month, does the Pilbara Minerals share price 'reflect too much optimism'?

How high is too high for Pilbara Minerals shares?

Key points
  • Pilbara Minerals has substantially beaten the ASX 200’s return in the last few weeks
  • The company is benefiting from the strong lithium price
  • Some experts think the Pilbara Minerals share price has charged too high

The Pilbara Minerals Ltd (ASX: PLS) share price has seen a very strong rise over the past month. It has surged up by 50% while the S&P/ASX 200 Index (ASX: XJO) has gone backwards by around 5%.

The ASX share market continues to be affected by investors concerned by inflation and higher interest rates. But, Pilbara Minerals has performed strongly for shareholders.

Within the last month, the ASX lithium share announced its FY22 result. Let's have a quick look at what was reported.

A woman shows her phone screen and points up.

Image source: Getty Images

FY22 earnings recap

The company reported that it generated around $1.2 billion of revenue after an increased realised selling price of US$2,382 per dry metric tonne (dmt). It shipped 361,035 dmt of spodumene concentrate, representing an increase of 28% year over year.

In FY21, it made earnings before interest, tax, depreciation and amortisation (EBITDA) of $21.4 million and a statutory net loss after tax of $51.4 million. In FY22, this had increased to $814.5 million of EBITDA and $561.8 million of net profit after tax (NPAT).

It had such a strong period of cash flow that it finished the year with a net cash position of $714.3 million, according to the company.

Is the Pilbara Minerals share price too high?

Michael Gable, from Fairmont Equities, thinks that the ASX lithium share is a sell, according to his rating on The Bull. He wrote:

Trading stocks within the lithium sector have been rewarding. But sometimes share prices can reflect too much optimism about lithium's future.

I believe vertical share price moves higher are unsustainable, particularly when profit takers make their move.

Gable isn't the only one with a negative outlook for the Pilbara Minerals share price. The broker UBS has a price target of $2.60 on the company.

That would equate to a fall of more than 40% over the next year if that price eventuated. While UBS appreciates the short-term profits that the miner is making, it thinks that other lithium ASX shares are priced more attractively.

Management view on the outlook

Pilbara Minerals' managing director and CEO Dale Henderson said:

Having recently approved the expansion to grow production by a further 100,000 tonnes per annum to a combined [approximate] 640,000 tonnes to 680,000 tonnes per annum, and with the company now progressing towards a final investment decision to expand production to 1 million tonnes per annum, Pilbara Minerals commences FY2023 in an exceptionally strong position.

Henderson said the company was in "an enviable position", supplying product into a "burgeoning growth market with a clear pathway for further production growth off a performing operating base".

Further, chemicals participation with our downstream joint venture with POSCO and our midstream project provides another extension of value creation for our shareholders. A very exciting future lies ahead for our business and our shareholders.

Pilbara Minerals share price snapshot

The Pilbara Minerals share price closed 3.49% higher at $4.75 on Monday. Despite the downward trend seen earlier this year, Pilbara Minerals shares are now up by 35% in 2022.

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 no position in any of the stocks mentioned. 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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