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.
While it may be large, Pilbara Minerals Ltd is a growth stock, and so it requires a different set of rules and may not be straightforward to value at times. Studies have shown that over 5-10+ years, it’s top-line revenue growth which explains a stock’s performance. That’s why it’s good to see Pilbara Minerals Ltd is able to grow revenue at 92.5%, a strong clip.
RIO shares
Rio Tinto is engaged in minerals and metals exploration, development, production and processing. It was founded in 1873 and is currently the world’s second largest metal and mining company behind BHP.
Rio Tinto’s portfolio of assets is condensed into four product groups: Aluminium, Copper & Diamonds, Energy & Minerals and Iron Ore.
Rio Tinto’s biggest export is iron ore which is the primary component of steel. As such, performance of the company can be strongly driven by the price of iron ore and other key commodities.
PLS share price valuation
As a growth company, some of the trends we would be looking for from PLS include revenue growth, profit growth, and return on equity (ROE). Since 2021, PLS has grown revenue at a rate of 92.5% per year to reach $1,254m in FY24. Over the same time period, net profit has increased from -$51m to $257m. PLS last reported a ROE of 7.7%.
Since RIO is more of a ‘mature’ or ‘blue-chip’ business, some of the metrics that might be important to us include the debt/equity ratio, average yield, and return on equity, or ROE. In FY24, Rio Tinto Ltd reported a debt/equity ratio of 25.0%, meaning the company has more equity than debt.
As for dividends, since 2019 RIO has achieved an average dividend yield of 6.4% per year.
Finally, in FY24, RIO reported an ROE of 18.2%. For a mature business you generally want to see an ROE of more than 10%, so RIO clears this hurdle.
It’s important to keep in mind that these are only a selection of metrics and don’t give us enough information to value the business or make an investment decision. To learn more about valuation, I’d recommend checking out one of our free online investing courses.
