Pilbara Minerals Ltd (ASX: PLS) shares have popped into the green this past month of trade and are up 7% in that time.
However, zooming out, shares in the lithium producer are down more than 22% this year to date, amid a soft lithium market and weak demand for electric vehicles (EVs).
The big question many investors have now is whether this lithium miner is worth buying. Let's see what the experts have to say on the matter.
Pilbara Minerals shares catch a bid
Pilbara Minerals shares have been hammered this year as the price of lithium continues its multi-year descent.
Prices of the battery metal currently fetch CNY 72,500 per tonne, recently touching more than three-year lows.
The culprit for this weakness? Or should I say, culprits?
There is a global oversupply of lithium carbonate, which is causing a global oversupply of lithium batteries, coupled with a simultaneous drawdown in the global demand for EVs.
Notice it's all 'global' as well. Demand has fallen in all major economies, whereas major producers have all committed to increasing the supply of the metal – up to 50% this year, according to Trading Economics.
These low prices mean running a lithium-producing operation has become increasingly unprofitable.
In its latest update, Pilbara announced it would temporarily suspend operations at its higher-cost Ngungaju plant in response to the low lithium prices.
By cutting production, Pilbara hopes to manage costs effectively and conserve cash, which, if management is correct, could generate an uplift of around $200 million by year-end. This may or may not impact Pilbara Minerals shares.
Brokers are generally bullish
Brokers have a split view on Pilbara shares, judging by the distribution of recommendations as per CommSec.
Consensus rates the stock a buy, factoring in the median analyst estimate in doing so.
But it should be known that eight brokers say to buy the stock, six say its a hold, whereas three recommend selling Pilbara shares right now.
Bell Potter is one of the more optimistic in the crowd. It likes Pilbara's move to scale down during difficult market conditions, while concurrently maintaining $1.4 billion in cash on the balance sheet.
But whilst the broker believes the company is on the right track, it isn't fully convinced now is time to buy.
Instead it rates Pilbara Minerals shares a hold with a price target of $2.95, implying a 4% downside from current levels.
Meanwhile, UBS cautions that global lithium supply may still exceed demand, which could pressure prices on the battery metal further.
It rates Pilbara Minerals shares a sell with a price target of $2.35, suggesting a 24% downside over the next year.
Foolish takeout
The lithium market remains volatile. Supply currently exceeds demand. Batteries are everywhere. And the urge to buy EVs is low.
As a result, Pilbara Minerals shares are down over the past year, but have caught a bid in recent weeks as stocks in general rally.
Based on the opinions of several brokers, they would need to see the stock fall further – a great deal further – before a decent margin of safety applies from their price tagets.
Net-net, Pilbara's future performance hinges on an improvement in lithium prices. In the last year, the stock is down more than 11%.
