The Pilbara Minerals Ltd (ASX: PLS) share price has been having a tough time lately.
As you can see below, after rising strongly between July and November, the lithium miner's shares have pulled back materially.
Investors may now be wondering if this has created a buying opportunity for investors. Let's take a look.
Is the Pilbara Minerals share price now in the buy zone?
According to a note out of Goldman Sachs, its analysts continue to sit on the fence with this one despite the recent weakness.
This morning's note reveals that Goldman has retained its neutral rating on the company's shares. Though, it is worth highlighting that the broker's improved price target of $4.70 implies meaningful upside potential.
Based on the latest Pilbara Minerals share price of $3.84, it suggests upside of 22% for investors over the next 12 months.
Goldman is also expecting a fully franked 21.4 cents per share dividend in FY 2023, which represents a 6% yield. This stretches the total potential return to 28%. Not bad for a neutral rating!
What did the broker say?
The broker's main qualm is the valuation of the Pilbara Minerals share price, which it feels is about fair based on its long term spodumene price forecasts. It said:
While near-term prices support a strong c.10-20% FCF yield over and above planned incremental capex spend, we see this as priced in trading at ~1x NAV on GSe LT US$1,000/t spodumene (peer average ~1x)
Lithium price and cost blow outs
Goldman also commented on yesterday's news relating to lithium pricing and its increased capital expenditure for the P680 project. It believes the former more than offsets the latter. The broker explained:
PLS has revised the P680 project capex to ~A$404mn, largely on material/equip, acceleration to maintain delivery schedule, and labour costs, with commissioning still on track for 2H CY23. FID for the P1000 project is now scheduled 1Q CY23, though ~A$38mn pre-FID funding was approved to procure long-lead items. However completed price reviews with major offtake customers drives stronger FY23E realised pricing and more than offsets the higher capex in our view.
