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, dig up, and sell spodumene concentrate (a fancy word for 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 skyrocketed in recent years on the back of developments in electric vehicles and renewable energy technology. Bullish investors would call Pilbara a ‘pure play’ investment in demand for green tech. 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.
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’s best known for 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. While the business has diversified globally, Australian operations still account for 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.
The competitive advantge that REA has is the same as any other established platform: network effects and economies of scale. In other words, Domain (the #2 player) is meaningfully behind REA in users and views, which means REA can continue to control pricing and market dynamics. REA also benefits from owning assets across all parts of real estate, including listing, advertising, mortgage broking, and house sharing.
Share price valuation
As a growth company, the way to put a broad estimate 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 2.13x, which compares to its 5-year average of 3.49x, meaning its shares are trading below their historical average. Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
The REA share price currently trades at a price-sales ratio of 17.00x, which compares to its 5-year long-term average of 16.25x. So, its shares are trading higher than their historical average. However, a simple multiple like this should only be the start of your research. Our websites explain Discounted Cash Flow (DCF), Dividend Discount Models (DDM), and many different ways to value a share, like Rea Group Ltd.
