The Galaxy Resources Limited (ASX: GXY) share price may have been one of the biggest movers during trade on Wednesday, but there could still be further upside ahead for its shares if one leading broker is to be believed.
According to a note out of Morgan Stanley, its analysts have upgraded the lithium miner to an overweight rating with a $3.50 price target.
This price target implies potential upside of almost 11.5% for its shares over the next 12 months.
Morgan Stanley has made the move on the back of its strong quarterly update and after the lithium miners suffered from a sharp sell-off related to potential future oversupply concerns.
It isn't the only broker that has become bullish on Galaxy. Yesterday a note out of Ord Minnett revealed that it had initiated coverage on the miner with a buy rating and $4.00 price target.
According to that note, its analysts see the recent sell-off as a buying opportunity and believe the electric vehicle theme has a lot of legs.
The broker also initiated coverage on fellow lithium miners Kidman Resources Ltd (ASX: KDR), Mineral Resources Limited (ASX: MIN), and Orocobre Limited (ASX: ORE) with buy ratings. Whereas it has started with a hold rating on Pilbara Minerals Ltd (ASX: PLS).
Should you buy Galaxy's shares?
As I have said previously, investing in the lithium miners is towards the high end on the risk scale.
That said, for investors with a higher risk tolerance, I think the tailwinds that the industry is experiencing does give an investment in Galaxy a compelling risk/reward.
I think its Mt Cattlin asset is one of the best lithium assets in the world and capable of generating high levels of free cash flow for many years.
But ultimately a lot will come down to supply and demand dynamics. I remain confident that demand is growing at a strong enough rate to outstrip any new supply that comes to the market in the coming years. This should help keep prices higher for longer and potentially allow Galaxy to bring its other assets on line as well.
However, it is worth remembering that if the opposite happens and an oversupply does occur, then the lithium miners could come under significant selling pressure.
