Down 42%: Are Pilbara Minerals shares good value now?

Here's what Bell Potter is saying about this beaten down mining stock

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Pilbara Minerals Ltd (ASX: PLS) shares have been sold off over the last 12 months.

During this time, the lithium miner's shares have crashed 42% and now trade at $3.00.

Are Pilbara Minerals shares in the buy zone?

While it could be tempting to jump in and snap up the company's shares after such a sizeable decline, one leading broker thinks investors should hold fire for the time being.

According to a note out of Bell Potter, its analysts have reaffirmed their hold rating and trimmed their price target to $3.40 (from $3.60).

While this implies potential upside of 13% for investors from current levels, the broker doesn't appear to believe this offers a good enough return to warrant a buy rating. Particularly given "weak near-term lithium market sentiment."

What is the broker saying?

Bell Potter has been busy updating its lithium price forecasts to reflect weaker than expected demand. This has resulted in the broker cutting its earnings estimates for Pilbara Minerals. However, it remains positive on the long term. It said:

We have updated our lithium price outlook on a slower than anticipated price recovery due to short-term demand weakness and supply dynamics. We maintain a strong EV-led long term market outlook, with prices supported by delayed investment in new sources of lithium supply. For FY25, we estimate SC6% prices to average US$1,200/t (previously US$1,400/t) and lithium carbonate of US$16,500/t (previously US$20,000/t). Concurrently, we have marked-to-market our June 2024 quarter SC6% price (US$1,170/t, 17% higher than expected) and A$/US$ FX rate (US$0.66/A$, 1% higher than expected). EPS changes in this report are: FY24 unchanged; FY25 -19%; and FY26 -2%.

In light of the above, while the broker is a big fan of the company, it isn't enough to justify a buy rating. It summarises:

PLS is a large, liquid and clean exposure to global lithium fundamentals and sentiment. PLS is a low-cost producer, it operates in a tier one jurisdiction in Western Australia, and has a strong balance sheet ($1.8b net cash at 31 March 2024) which can withstand weaker lithium prices and support expansion programs. We are confident that EV-led demand will see strong long-term lithium market fundamentals. However, weak near-term lithium market sentiment results in us retaining our Hold recommendation.

Overall, it could be worth keeping Pilbara Minerals shares on your watchlist and waiting for a better entry price or for sentiment and demand to shift in the industry.

Motley Fool contributor James Mickleboro 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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