PLS share price in focus
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.
REA shares
Founded in 1995, REA Group is a Melbourne-based real estate advertising company that is majority owned by News Corp. In Australia, it operates through its Realestate.com.au platform.
REA Group operates on a global scale and now operates property websites in around 10 countries used by some 20,000 agents. In a typical month, the core Australian website gets over 55 million visits. The business is broken down across geographic lines, with Australia taking the lion’s share of revenue. Within Australia, REA makes money by listing properties for sale or rent (i.e. the agent uses REA’s website to show properties, which the property owner is on the hook to pay). It also makes money from financial services (e.g. mortgage broking), but this is a much smaller part of the business.
Property websites such as Realestate.com.au attract both buyers and sellers and aim to simplify the process resulting in an efficient and stress-free transaction. We believe its competitive advantge is that of any other established platform: network effects and efficient scale. In other words, Domain (the #2 player) is meaningfully behind REA in users and views, which means REA can continue to charge more.
Share price valuation
As a growth company, the way to put a rough calculation 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 2.27x, which compares to its 5-year average of 6.53x, meaning its shares are trading below their historical average. Please keep in mind that context is important – and this is just one valuation technique. I wouldn’t make a decision based on one metric.
The REA share price trades at a price-sales ratio of 19.20x, which compares to its 5-year long-term average of 12.29x. So, its shares are trading higher than their historical average. However, please do more investigating than a simple multiple like this. Our websites explain Discounted Cash Flow (DCF), Dividend Discount Models (DDM), and many different ways to value a share, like Rea Group Ltd.
