Why ASX 200 investors remain upbeat on Pilbara Minerals shares

Pilbara Minerals has some unique advantages over many rival ASX lithium miners.

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Like every S&P/ASX 200 Index (ASX: XJO) lithium stock, Pilbara Minerals Ltd (ASX: PLS) shares have been hit hard by free-falling lithium prices.

With global supply growth of the battery critical metal now outpacing the demand growth outlook over the medium-term, lithium prices have cratered by around 80% from their November 2022 highs.

This was reflected in Pilbara's half year results (1H FY 2024), released on Thursday. Though investors took those results in stride, with Pilbara Minerals shares closing the day flat.

What did the ASX 200 lithium stock report?

On the positive side of the ledger, the ASX 200 lithium miner achieved a 7% year on year increase in sales volumes for the six months. Though that was far from enough to counter the 67% slide in its average realised price.

Lower lithium prices drove a 65% decrease in revenue to $757 million. And underlying profit after tax was down 78% from 1H FY 2023 to $273 million.

The pricing pressure saw Pilbara Minerals shares come without a dividend for the half. The company first began paying dividends in 2023.

That will, however, help the miner maintain its strong balance sheet. Pilbara had a cash balance of $2.1 billion as at 31 December.

Commenting on the suspended dividend, Megan Stals, market analyst at online brokerage platform Stake said, "Some investors may be disappointed that Pilbara is deferring its dividend. But, given low lithium prices, it appears to be a sensible move for the balance sheet as headwinds continue to weigh on the sector."

Why ASX 200 investors are buying Pilbara Minerals shares

Commenting on the outlook for Pilbara Minerals shares on the day of the results, CEO Dale Henderson said:

With the company's low unit-cost structure and strong balance sheet, Pilbara Minerals is uniquely placed to better withstand periods of softer pricing whilst continuing to build-out the production base to capitalise on improved pricing conditions.

Stals said those lower costs offer Pilbara an advantage over most rival ASX lithium stocks.

"Pilbara's relatively low unit costs have so far seen the company withstand softer pricing, providing a competitive advantage over others in the sector," she said.

Stals also noted that the miner could benefit down the track as it was moving ahead with two major expansion projects.

"The company's large relative size means there could be the opportunity to increase market share in time for the next lithium upturn."

This means that "investors could see the current price slump as an opportunity to buy" Pilbara shares, she said.

Indeed, the data from the Stake platform indicates numerous ASX 200 investors are already eyeing the longer-term potential.

According to Stals:

Trading volume on Stake shows that enthusiasm for lithium stocks has slightly tapered off in recent months, but Pilbara remains within our top ten most popular buys.

Following Thursday's results, she said, "We have seen twice as many buys as sells, showing investors are on the whole still positive about Pilbara's long-term prospects."

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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