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 find, process, and sell spodumene concentrate (basically rocks with lithium in them). 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 steelmaker.
Demand for lithium has grown steadily in recent years on the back of developments in electric vehicles and renewable energy technology. Some investors would call Pilbara a ‘pure play’ investment in demand for green tech given their direct involvement with lithium. 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.
ALL shares
Aristocrat Leisure is an Australian gambling machine operator headquartered in Sydney. It was founded by Len Ainsworth in 1953
Today, Aristocrat is the largest gambling machine manufacturer in Australia and one of the largest manufacturers of slot machines in the world. However, the business has diversified over the years and now also makes online mobile games. This segment has grown steadily to now make up nearly half of the company’s revenue.
The gaming machines Aristocrat make can be sold outright to a venue or gaming operator. Alternatively, a machine can be installed with a proportion of the revenue generated being paid on a recurring basis back to Aristocrat.
PLS share price valuation
As a growth company, one way to put a broad projection on the PLS share price could be to compare its price-to-sales multiple over time. This can tell us how the company has historically been valued relative to its total revenue.
Currently, Pilbara Minerals Ltd shares have a price-sales ratio of 5.16x, compared to its 5-year average of 20.35x, meaning its shares are trading lower than their historical average. This could mean that the share price has fallen, or sales have increased, or both. In the case of PLS, revenue has been growing over the last 3 years. Of course, context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric, but this can be a rough starting point.
The ALL share price currently trades at a price-sales ratio of 6.66x, which compares to its 5-year long-term average of 4.87x. So, its shares are trading above their historical average. Don’t forget, a simple multiple like this should only be the start of your research. The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! It’s a good idea to use multiple valuation methods to value a share like Aristocrat Leisure Limited.
