The ASX lithium share Pilbara Minerals Ltd (ASX: PLS) has soared by more than 90% in the past six months, as the chart below shows. This is a good time to ask whether the ASX mining share is a buy today.
When it comes to a volatile, seemingly cyclical business like Pilbara Minerals, it's important to remember that past performance is not a reliable indicator of future performance. In other words, don't expect it to rise another 90% in the next six months.
A significant portion of the recent excitement can probably be explained by a reduction in lithium supply from China.
But the hype may have run its course for now.
Image source: Getty Images
Can the Pilbara Minerals share price deliver more gains?
Broker UBS recently released some updated thoughts on the lithium market situation. It said that, having been bearish on the outlook for around two years, it recently pushed through significant price upgrades on the expectation that further supply disruption to Chinese lepidolite producers (and ongoing strong demand) could tighten up the market more quickly.
While UBS still expects a recovery to play out, it has reduced the expected duration of outages and slightly lowered its short-term price outlook for spodumene (lithium). The reduction for the 2025 forecast is 7% to US$835 per tonne, and the reduction for the 2026 forecast is 12% to US$1,100 per tonne.
Miners are very exposed to operating leverage, both positively and negatively. Mining costs typically don't change much each period, so a rise in revenue is a big boost to profitability, while a fall in revenue cuts into profitability significantly.
Due to lower expectations for the lithium price, UBS decided to reduce its Pilbara Minerals FY26 earnings per share (EPS) forecast by 63%. The broker compared that significant decline in expectations to the big rise in the Pilbara Minerals share price.
Even so, the broker still said the company is "best positioned to capitalise on a recovery in prices".
Rating on the ASX lithium share
Due to the massive increase in the Pilbara Minerals share price, UBS changed its rating on the company to a sell, with a price target of $2.25. The broker said its price target is based on a long-term price assumption for lithium of US$1,200 per tonne.
A price target is where analysts expect the share price to be in 12 months from the time of the investment call. Therefore, the price target suggests the Pilbara Minerals share price could fall by 13% from where it is today.
