The Australian share market is full steam ahead on Wednesday as the materials sector carries the S&P/ASX 200 Index (ASX: XJO) 0.72% higher. Some of the names heavily aiding in today's rally are ASX lithium shares.
It appears enthusiasm has returned to a number of popular lithium-producing companies today amid several positive broker ratings. Investors are potentially breathing a collective sigh of relief — at least temporarily — following a tough month for future lithium expectations.
Is it time to buy these ASX 200 lithium shares?
Views are still mixed on what the future looks like for the electrifying commodity, lithium.
Last month, Goldman Sachs shared its belief that lithium prices will begin to disintegrate this year as additional supply hits the market. Meanwhile, other brokers — such as those at Macquarie — are forecasting a sparkling future for the lithium price based on a continued supply shortfall.
Any company that produces a commodity is largely influenced by the price of said commodity. Based on this, Jefferies and Citi must be expecting positive trends for the lightweight metal over the next 12 months based on their latest buy ratings.
Today, analysts at Jefferies have labelled Allkem Ltd (ASX: AKE) and IGO Ltd (ASX: IGO) as buys. Likewise, Citi is optimistic about the road ahead for Pilbara Minerals Ltd (ASX: PLS), assigning this ASX 200 lithium share a buy as well.
Investors are responding with strong buying pressure for these extremely profitable lithium companies. At the time of writing, shares in Allkem, IGO, and Pilbara Minerals are up 5.4%, 4.1%, and 3.8% respectively.
The all-important question is: Will the profits continue to grow to justify the valuations? At the extreme, IGO shares are now trading on a price-to-earnings (P/E) ratio of approximately 32 times. Whereas, the Australian metals and mining industry average hovers around 12 times.
Out of the three ASX 200 lithium shares rated, Allkem trades on the lowest earnings multiple at 17 times. At the same time, the $7.9 billion lithium producer also holds the lowest historical annual earnings growth rate of the three at 23%.
