Have you invested in Pilbara Minerals Ltd (ASX: PLS) shares? You might have a hold in the market's least risky ASX lithium companies.
That is, according to Shaw and Partners portfolio manager James Gerrish, who recently made such comments to Market Matters. The expert dubbed the S&P/ASX 200 Index (ASX: XJO) stock the "lower-risk exposure in a risky sector", my Fool colleague Tony recently reported.
What might that mean for Pilbara Minerals shares and ASX lithium fans alike? Let's take a look.
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Are Pilbara Minerals shares a lower-risk ASX lithium buy?
Pilbara Minerals is one of the market's largest lithium stocks. Indeed, it's currently the ASX's largest lithium pure-play.
Though, that might not be the case for long – Allkem Ltd (ASX: AKE) announced its plan to create a $15.7 billion lithium giant by merging with Livent Corp (NYSE: LTHM) this week. Pilbara Minerals' $13.6 billion market capitalisation would be dwarfed by the unified entity.
However, unlike Allkem, Pilbara Minerals is a dividend-paying stock. It declared its maiden dividend earlier this year, offering investors 11 cents per share for the first half of financial year 2023.
And that's partly why Gerrish likes the look of Pilbara Minerals shares. Looking forward, he forecasts the company to lift its production and, in turn, its earnings and dividends.
Pilbara Minerals recently pulled the trigger on bolstering its Pilgangoora Project's nameplate production capacity to around one million tonnes of spodumene concentrate per annum.
The expansion will be funded through the company's strong balance sheet and ongoing cash flows. It boasted a $2.45 billion net cash position as of 31 March.
However, as Gerrish noted, the lithium space is generally inherently risky. Getting a lithium mine off the ground can take years, and many lithium hopefuls are still working to get there.
Unlike many of Pilbara Minerals' peers, the company has achieved production. As have the likes of Mineral Resources Ltd (ASX: MIN) and Allkem.
Still, it's worth noting most, if not all, lithium companies face a common risk factor: lithium prices.
What might the future hold for the ASX 200 lithium stock?
Morgans believes falling lithium prices will see Pilbara Minerals post a 4 cent per share final dividend.
Though it expects the value of the battery-making material to bounce in the future, my colleague James reports.
For that reason, the broker has a $5 price target on Pilbara Minerals shares. Macquarie is more bullish still, tipping the stock to soar to $7.70 – a potential 69% upside.
However, Goldman Sachs isn't so hopeful. It has a neutral rating and a $4.10 price target on the ASX 200 lithium share – representing a 10% downside. The broker has long been bearish on lithium prices.
It's also worth mentioning Morgans flagged it as a potential takeover target, alongside Allkem, last month.
Goldman Sachs, on the other hand, doesn't expect any takeover talk regarding Pilbara Minerals shares any time soon. Nor is the company's management focusing their efforts on merger and acquisition opportunities.
