We recently compiled a list of 10 High Growth Lithium Stocks to Invest In. In this article, we will look at where Pilbara Minerals Limited (OTC:PILBF) ranks among high growth lithium stocks to invest in.
Lithium Prices Drop but Demand Signals Long-Term Gains
Rio Tinto announced its acquisition of U.S.-based Arcadium for $6.7 billion, positioning itself as the world’s third-largest lithium miner. The deal comes while lithium prices are falling these days, which are driven by oversupply from China and a slowdown in EV sales, which has made lithium miners attractive takeover targets.
Despite current price drops, the company’s CEO is optimistic about long-term lithium demand, a sentiment shared by Frank Nicolich, CRU Group vice president of base and battery metals. In an interview with Julie Hyman and Josh Lipton of Yahoo Finance, Nicolich explained that while prices are low due to oversupply, mining deals like the one mentioned above are long-term investments.
He expects lithium demand to increase three to four times over the next decade as the transition to clean energy accelerates, making substantial new supply essential. Lithium is highly valued for batteries as it offers the right chemical and electrochemical properties. Although sodium-ion technology may eventually be an alternative, lithium remains universally used in all battery chemistries for now.
Regarding future lithium production, Nicolich pointed to Africa, especially the old tin mines, as a significant near-term source. South America remains a major player, while North America and Canada also have promising lithium deposits. However, U.S. production is currently small, with potential for growth if prices rise.
As lithium demand grows, Nicolich expects more acquisitions as miners seek to position themselves for the future. For investors, the lithium market is still developing. While futures markets for lithium are emerging, such as in China and potentially with the CME, investing in lithium is currently best done through miners rather than direct commodity investments.
We mentioned a similar long-term sentiment in our article about the biggest lithium stocks article posted last month. Here is an excerpt from the article:
“Despite challenges like pricing and demand headwinds in 2023, the U.S. and Canadian lithium sectors are set to make progress in 2024, with several construction projects potentially starting to boost domestic lithium supply. According to an S&P Global report, while the lithium market has seen slow activity and falling prices, especially in Asia, long-term demand fundamentals remain strong due to the global transition toward electric vehicles (EVs) and energy storage.
Even though lithium prices dropped in 2023 after reaching record highs in 2022, the long-term outlook for the EV market remains promising. According to the report, EV sales are expected to reach 30.81 million units by 2027, and lithium prices are expected to stabilize between $20,000 and $25,000 per metric ton in the coming years. Despite the industry’s cyclical nature, current pricing remains strong enough to attract investment, especially with regulatory support driving the EV transition in countries like Canada.”
Our Methodology
For this article, we used lithium ETFs to identify nearly 50 stocks and we narrowed our list to 30 companies with significant operations in the lithium and battery market. Next, we chose 10 stocks with double-digit 5-year compound annual growth rates (CAGR) in revenue (at least 10%). Our primary metric for listing the stocks was hedge fund sentiment and for the secondary one, mainly for the stocks not trading on NYSE or NASDAQ, we listed according to their average analyst price target upside. The hedge fund sentiment was taken from Insider Monkey’s Q2 database of 912 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Pilbara Minerals Limited (OTC:PILBF)
5-Year Revenue CAGR: 96.52%
Average Price Target Upside: 57.4%
Number of Hedge Fund Holders: N/A
Pilbara Minerals Limited (OTC:PILBF) owns the world’s largest independent hard-rock lithium operation, located in Western Australia’s Pilbara region. The company produces spodumene and tantalite concentrates at its Pilgangoora Operation. As part of its growth and diversification strategy, it seeks to become a sustainable supplier of battery materials.
The company faced a decline in lithium prices, impacting financial performance. Despite this volatility, it is focused on delivering its commitments and creating value for shareholders and communities. It is one of the best high-growth lithium stocks.
In FY24, Pilbara Minerals (OTC:PILBF) increased production by 17% to 725,329 dry metric tons (dmt) due to the P680 Expansion Project. Despite higher production, financial performance was impacted by a 74% drop in average realized spodumene concentrate prices. The company reported revenues of A$1.3 billion, EBITDA of A$538 million, and a net profit of A$257 million, down significantly from FY23. Operating costs rose 7% to A$654 per dmt due to the expansion project, but freight and royalty costs reduced overall unit costs to A$818 per dmt.
Pricing for spodumene concentrate averaged US$1,176 per ton, a 74% decline from the previous year, which points to industry-wide price volatility. Despite this, the long-term outlook for lithium materials remains positive due to ongoing demand. Pilbara (OTC:PILBF) continues to focus on expanding production capacity and securing strategic agreements to support its growth.
Overall PILBF ranks 10th on our list of high growth lithium stocks to invest in. While we acknowledge the potential of PILBF as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PILBF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.