The Pilbara Minerals Ltd (ASX: PLS) share price is digging a deeper hole on Tuesday.
At the time of writing, shares in the lithium producer are down 6.2% to $3.65. The company is not alone in its punishment today, with nearly the entire S&P/ASX 200 Index (ASX: XJO) sitting in the red, aside from some strength among gold miners.
It's been a tough month for Pilbara Minerals shares amid a cascading lithium price. A mixed bag of views on the battery commodity has cast doubt on the industry's future cash flows. In turn, the Pilbara Minerals share price has tumbled 24% over the past month.
Could the downtrodden price represent a valuable opportunity?
Time to pull the trigger on Pilbara Mineral shares?
First and foremost, mining is a price-taking industry. Profits for companies — including those of Pilbara Minerals — are heavily dependent on the going rate for the commodity in question.
All else equal, you can expect the company's earnings to grow in lockstep with the material. Hence, the supply and demand of lithium are critical to the performance of the industry and the companies that operate in it.
As we can see in the chart below, Pilbara's profits have skyrocketed alongside the price of lithium since 2021. However, lithium futures (orange) have traded downwards since the end of last year, coinciding with the peak in revenue.
While Pilbara Minerals shares may look cheap at a price-to-earnings (P/E) ratio of 6.6 right now, this is based on the past 12 months of earnings. The concern is earnings could be meaningfully lower moving forward with lithium carbonate prices tumbling nearly 40% so far this year.
If the current Pilbara Minerals share price represents an opportunity then it really comes down to whether you believe lithium prices will trend higher or sustain their downward move.
What are analysts forecasting for lithium?
As previously mentioned, the future of lithium depends on who you ask and over what time frame.
My colleague, Tristan Harrison, recently wrote about Citi's forecasts of further weakening in the electrifying material's price.
According to the broker, short-term pressure will come from a perceived weakness in electric vehicle demand in China. As such, Citi's analysts are expecting a price of US$40,000 per tonne in the next three months compared to its prior US$60,000 per tonne estimate.
Meanwhile, the team at Morgans is expecting demand in the Chinese market to return from March onwards. On this assumption, analysts think Pilbara Minerals shares are worth considering amid the selling.
