Downgrade alert: Pilbara Minerals shares rated 'sell' and tipped to crash 18%

This lithium giant has been hit with a broker downgrade this morning.

Key points
  • Pilbara Minerals has doubled in value recently, but Bell Potter advises taking profits due to perceived overvaluation and an unrealistic long-term lithium price expectation.
  • The company has excelled in production and cost reduction, while advancing key projects and joint ventures to prepare for future stronger lithium markets.
  • Bell Potter has downgraded Pilbara Minerals to a sell rating with an 18% downside over 12 months, citing concerns over the valuation based on current lithium market prices.

Pilbara Minerals Ltd (ASX: PLS) shares have been in fine form in recent months.

So much so, the ASX lithium giant's shares have doubled in value since the end of July.

This saw them end last week within sight of a new 52-week high.

Unfortunately, one leading broker is calling time on this rally and urging investors to take profit today.

A man sitting at a computer is blown away by what he's seeing on the screen, hair and tie whooshing back as he screams argh in panic.

Image source: Getty Images

What is the broker saying?

According to a note out of Bell Potter, its analysts were impressed with the lithium miner's performance during the first quarter. Commenting on the result, the broker said:

PLS reported quarterly spodumene concentrate (SC) production of 225kt (BP est. 215kt) and sales of 214kt at 5.3% Li2O (BP est. 215kt). Lithium recoveries were 78% (Q4 FY25 72%), a group record as Pilgan Plant optimisation progressed, supporting unit costs of A$540/t FOB (down 13% QoQ, BP est. A$575/t).

It also highlights that the company has been successfully navigating a volatile lithium market. Bell Potter adds:

PLS continues to navigate a volatile lithium market environment, with several initiatives targeting cash preservation during the current weaker lithium price environment. At Pilgangoora, cost reduction and operational enhancements include the transition to an owner-operator mining fleet and the processing of higher levels of contact ('dirty') ore.

At its South Korean lithium hydroxide facility, PLS and joint venture partner POSCO have agreed to moderate production in the short term. PLS continues to advance its earlier stage projects (Colina Project in Brazil, P2000 expansion and mid-stream demonstration plant at Pilgangoora, downstream conversion partnership with Ganfeng), preparing itself to capture value on what we expect will be stronger lithium markets over the long term.

However, despite these positives, Bell Potter thinks that Pilbara Minerals' shares are now overvalued and pricing in an unrealistic long-term lithium price.

Bell Potter downgrades Pilbara Minerals shares

This morning, Bell Potter has downgraded Pilbara Minerals shares to a sell rating (from hold) with an improved price target of $2.65 (from $2.10).

Based on its current share price of $3.23, this implies potential downside of 18% over the next 12 months.

Commenting on its sell rating, the broker said:

We downgrade our recommendation to Sell (prev. Hold) following recent strong share price appreciation. We hold a positive long term lithium market outlook and acknowledge PLS' market leading position and growth optionality. However, we believe PLS' current market valuation implies an SC6 index price of over US$1,400/t into perpetuity, compared with the current price of around US$850/t.

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.

More on Materials Shares

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
Materials Shares

Orora FY26 earnings: Cans strong, Glass under pressure

Orora's FY26 results show strength in Cans but ongoing challenges for Glass, including a substantial non-cash impairment.

Read more »

Three people at a building site discussing a plan whilst eating.
Materials Shares

Fletcher Building posts higher volumes in Q1 FY27, residential lags

Fletcher Building posted Q1 FY27 sales volume growth in several key business units, though residential activity stayed challenging.

Read more »

A bland looking man in a brown suit opens his jacket to reveal a red and gold superhero dollar symbol on his chest.
Materials Shares

2 ASX lithium shares to buy with 38% to 120% upside

Bell Potter sees potential for these shares to rise strongly over the next 12 months.

Read more »

Female miner in hard hat and safety vest on laptop with mining drill in background.
Materials Shares

Why are Lynas Rare Earths shares crashing 6% today?

Are Lynas Rare Earths shares a buy, sell, or hold now?

Read more »

Businessman planning and analysing investment data.
Materials Shares

Forget PLS, this ASX lithium stock could rise 80%

Is this lithium miner about to roar higher? Here's what Bell Potter is predicting.

Read more »

Couple using their digital tablet together.
Materials Shares

Orica updates on North American supply and land sales

Orica secures key North American supply and updates on land sales, supporting future growth and shareholder value.

Read more »

Man analysing data on his laptop.
Materials Shares

Forget BHP and buy this ASX copper stock

Bell Potter thinks there could be big returns on offer from this stock.

Read more »

A brightly coloured graphic with a silver square showing the abbreviation Li and the word Lithium to represent lithium ASX shares such as Core Lithium with small coloured battery graphics surrounding
Materials Shares

Why are Core Lithium shares crashing 8% on Thursday?

A busy morning of announcements has investors taking notice.

Read more »