The Pilbara Minerals Ltd (ASX: PLS) share price had a day to forget on Thursday.
The lithium miner's shares crashed over 11% to $4.03.
As you can see below, this means the Pilbara Minerals share price has now pulled back by almost 30% from the record high it reached in November.
Why did the Pilbara Minerals share price tumble?
The key driver of yesterday's weakness was the release of the company's latest battery material exchange (BMX) digital auction results.
According to the release, the company sold two cargoes of lithium spodumene for a combined total of 10,000 dry metric tonnes (dmt) at an average price of US$7,552/dmt (SC5.5, FOB Port Hedland basis).
While this is still materially more than its cost of production, it is down 3.2% from the US$7,805/dmt it received last month.
This has sparked fears that lithium prices may now have peaked, which is something that Goldman Sachs warned could happen. Investors now appear concerned that Goldman's prediction that prices will drop all the way down to US$800 by 2024 will also come true.
Is this a buying opportunity?
The team at Morgans believes that the weakness in the Pilbara Minerals share price was "a significant over-reaction" and has created a buying opportunity for investors.
As a result, just a day after initiating coverage on the lithium miner with a hold rating, it has upgraded its shares to a buy rating with a $4.70 price target. This implies potential upside of almost 17% for investors from current levels. It said:
Given the steep drop in the share price today, we see more opportunity than we did when we published our initiation yesterday. We upgrade our rating to ADD.
Sentiment towards the sector could weaken further in the very short term but we expect that strong 2Q cash flows and the potential for capital management may change investors' minds.
