The Pilbara Minerals Ltd (ASX:PLS) share price has fallen 3% since the start of the 2023. The BHP Group Ltd (ASX:BHP) share price is 10% off its 52-week low.
PLS share price
Pilbara Minerals is a leading ASX-listed lithium company, owning 100% of the world’s largest, independent hard-rock lithium operation, Pilgangoora, which it acquired in 2014.
Pilbara’s primary business is to, put simply, find, dig up and sell spodumene concentrate. It sells its concentrate through “offtake” agreements and spot sales on the Battery Material Exchange (BMX) platform. A good example of an offtake partner is Great Wall (the Chinese car company) or POSCO, a South Korean company.
Pilbara has overcome significant hurdles to become a leader in lithium mining in Australia. However, as a commodities producer, its revenue is still at the mercy of (sometimes dramatic) fluctuations in the price of spodumene in the global market. Even still, bulls would say it’s a ‘pure play’ investment on demand for electric vehicles and battery tech.
BHP share price
BHP Group (formerly BHP Billiton) is a diversified natural resources company producing commodities that was founded in 1885.
BHP’s principal business lines are mineral exploration and production. BHP’s assets, operations and interests are separated into three focus areas: Copper and related minerals (e.g. gold, uranium, silver, zinc, etc.), Iron Ore, and Coal (i.e. metallurgical and energy).
BHP shares are often seen as a reliable dividend paying investment and is a common constituent of an ASX share portfolio. If you own an popular ETF or LIC, or invest with Industry Super, chances are you have exposure.
Share price valuation
As a growth company, the way to get a rough valuation on the PLS share price could be to compare its price-to-sales multiple over time. Currently, Pilbara Minerals Ltd shares have a price-sales ratio of 2.60x, which compares to its 5-year average of 6.53x, meaning its shares are trading below their historical average. But please don’t be fooled. While the PLS share price has fallen in recent times, a big reason for the seemingly low valuation is because sales have exploded in recent years as the company has scaled fast. So please keep this in mind before making a decision.
Since it is a more mature-style business, the BHP share price is offering a historical dividend yield of around 5.77%, which compares to its 5-year average of 9.38%.
It sounds weird but oftentimes a great time to sell a resources stock is when the multiples (P/E, P/S ratios, etc.) are low and the dividend yields are high — since it can imply we are at cyclical high in commodities. However, this isn’t the case – especially in PLS’s case, since lithium prices have fallen.
Ultimately, I’d definitely have both of these ASX shares on my watchlist.
