PLS share price in focus
Pilbara Minerals is a leading ASX-listed lithium company, known for owning 100% of the world’s largest independent hard-rock lithium operation, Pilgangoora, which it acquired in 2014.
The company’s main business is the extraction and sale of spodumene concentrate (lithium-bearing rocks), which it sells through long-term offtake agreements and spot sales on the Battery Material Exchange (BMX) platform. Notable offtake partners include companies like Great Wall, the Chinese automaker, and POSCO, a South Korean steel producer.
With the growing demand for lithium driven by the rise of electric vehicles and renewable energy technologies, Pilbara Minerals is often seen by bullish investors as a “pure play” on the green tech boom. However, as a commodities producer, the company’s revenue is still subject to significant fluctuations in the global price of spodumene.
The key metrics
For investors, PLS’s revenue, gross margin, and profit can provide valuable insights into the company’s performance.
PLS last reported an annual revenue of $1,254m with a compound annual growth rate (CAGR) over the last 3 years of 92.5% per year. While the absolute number is useful to know, the key point is the trend. We want to see a consistent, upward trajectory in revenue.
Gross margin measures profitability before taking into account overhead costs – it reflects the strength of the company’s core business operations. PLS’s latest reported gross margin stood at 42.2%.
Finally, the number we’re most interested in – profit. Last financial year Pilbara Minerals Ltd reported a profit of $257m. Three years ago they made a loss of -$51m, so it’s positive to see how profits have recovered.
Financial health of PLS shares
Profitability is important, but equally important is the capital health of the company. We want to know about the company’s leverage, their capacity to pay debts, and their ability to generate a return on assets. One measure we can look at is net debt. This is simply the total debt minus the company’s cash holdings.
Pilbara Minerals Ltd’s net debt currently sits at -$1,071m. A negative value here indicates that the company has more assets than debt, suggesting PLS is in a stong financial position.
Another figure we can look at is the debt/equity percentage. This tells us how much debt the company has relative to shareholder equity – this is also known as leverage. PLS has more equity than debt, with a debt/equity ratio of 17.1%.
Finally, we can look at the return on equity (ROE). The ROE tells us how efficiently the company is turning shareholder equity into profit – high numbers indicate the company is generating a lot of value for investors, while a low number raises concerns that capital isn’t necessarily being allocated efficiently. PLS generated an ROE of 7.7% in FY24.
What to make of PLS shares?
With strong revenue growth over the last 3 years and profits trending upwards, the PLS share price could be one worth watching in 2025. However, take note of the low return on equity. Have a look at other companies in the same industry to get a sense of whether an ROE like this is normal for the industry, or a red flag to be wary of.
Please keep in mind this should only be the beginning of your research. Company quality is one thing, but making sure the valuation is reasonable is another entirely. There are many ways you can try to value a company. If you want to learn more about share price valuation, you can sign up for one of our many free online investing courses.
