The Lynas Rare Earths Ltd (ASX: LYC) share price is back on the horse following a dire period on the market. While the stock is up 3.38% today, trading at $6.265, it's still more than 35% lower than its January peak.
For comparison, the S&P/ASX 200 Index (ASX: XJO) is up 1.31% today and has gained around 5% since the start of 2023.
The Lynas share price's Tuesday gains might have something to do with the 83% surge recorded by its peer Australian Rare Earths Ltd (ASX: AR3). Stock in the $24 million company is rocketing amid reporting on a finding said to be of "multigenerational significance", announced last week.
Perhaps more excitingly, Australian Rare Earths said its Koppamurra project could conceptually house up to 1.4 billion tonnes of rare earth oxide – enough to put the company on the global stage, The Australian reported over the Easter long weekend.
So, while all eyes are on ASX rare earths producers and hopefuls on Tuesday, let's delve into what the future might hold for the Lynas share price.
What's been going wrong for this ASX 200 rare earths stock?
The Lynas share price has been driven lower by numerous disappointing announcements in 2023.
The first hit came on the renewal of Lynas Malaysia's operating licence in February, confirming the company will no longer be allowed to import or process lanthanide concentrate from the middle of this year amid concerns about radioactive waste.
Next, it dropped its earnings for the first half of financial year 2023. It detailed a 32% jump in costs compared to an 18% increase in revenue.
Finally, the stock was pummelled once again when vehicle giant Tesla announced its next-generation powertrain would do without rare earths. That likely shook some investors' faith in the future of rare earth producers.
What might the future hold for Lynas?
Fortunately, the future looks brighter for Lynas.
The company is appealing against the conditions put in place on its Malaysian plant. Though, if it's unsuccessful, it will be forced to close the plant's cracking and leaching component.
Meanwhile, it's constructing its Kalgoorlie processing facility – housing an Aussie cracking and leaching plant. Feed on at the facility is targeted for the final quarter of this fiscal year.
It's also continuing the development of its Mt Weld project and progressing its planned US processing facility. The project's expansion aims to produce concentrate feedstock for 12 kilotons per annum of neodymium and praseodymium (NdPr).
How low could the Lynas share price go?
So, just how low could the Lynas share price feasibly go? Until I get my crystal ball up and running, we can only compare the stock's valuation to that of its peers' – and the market isn't always so reasonable or logical.
I'll be keeping my eye on the stock's 52-week low of $6.02 – posted on Thursday. That's the lowest it's been since July 2021. At such levels, Lynas has a market capitalisation of around $5.6 billion.
Further, Lynas shares offered a price-to-book (P/E) ratio of 3.35 at its previous close. For comparison, peer Iluka Resources Limited (ASX: ILU) boasted a P/B ratio of 2.48.
Lynas' shares would have to trade to $4.49 to meet Illuka's P/B ratio – leaving it with a valuation of just $4.2 billion.
However, considering the company's growth trajectory, I don't expect its valuation to fall that far. And neither do many top brokers.
Brokers tip Lynas shares to surge up to 31%
In fact, most brokers tip the Lynas share price to gain from here.
Bell Potter, for one, has an $8.06 price target on the stock – a potential 28% upside, while Citi expects it to lift 31% to $8.20.
