Pilbara Minerals Ltd (ASX: PLS) shares have seen plenty of volatility over the past 12 months. After all the excitement, the Pilbara Minerals share price is up around 9% in the last year.
Sentiment about the ASX lithium share has changed significantly as investors try to figure out how much profit the industry could make in the short and long term.
As a resource business, the price of the commodity can have a big impact on profitability.
Mining costs don't typically change much month to month, so if the price for the resource goes up, that extra revenue per tonne is largely extra profit, aside from paying more to the government.
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How much profit could Pilbara Minerals shares generate in FY23?
Here's why I think the ASX lithium share will likely announce a big profit increase.
Throughout 2022, Pilbara Minerals reported steadily-growing auction prices for small amounts of its production on the Battery Material Exchange (BMX) platform. In mid-November 2022, the company reported the sale of 5,000 dry metric tonnes (dmt) for US$7,805 per dmt, or US$8,575 per dmt on a CIF China, SC6.0 basis.
It also announced just before Christmas 2022 that it had significantly improved pricing outcomes with its major offtake customers. The revised offtake pricing applied for all shipments to major offtake customers and would equate to approximately US$6,300 per dmt (CIF China) on a SC6.0 basis.
After the strong price increase, Pilbara Minerals' profit is projected to soar.
We've already heard during the three months to September 2022 that the company experienced a $783.7 million increase in its cash balance to $1.375 billion.
I think that knowing the profit expectations in per-share terms is the most important because it gives context to the Pilbara Minerals share price.
In FY23, Pilbara Minerals is projected to generate 75 cents of earnings per share (EPS), according to Commsec.
This puts the ASX lithium share at a forward price/earnings (p/e) ratio of under six.
It could also pay an annual dividend per share of 17 cents, translating into a grossed-up dividend yield of 6%.
Does this mean it's great value?
While the company is expected to make a big profit in FY23, the profit is expected to reduce in FY24 and then again in FY25.
Using the current estimates on Commsec, the Pilbara Minerals share price is valued at 8x FY24's estimated earnings and 10x FY25's estimated earnings. I believe these numbers are still reasonable.
I think the ASX lithium share has a very promising future. FY23's profit isn't likely to be repeated, in the next few years at least, but the business is working on increasing its production and is becoming more involved with the lithium value chain process.
While it can't control the lithium price, it's doing the right things to grow its underlying profitability in the coming years, in my opinion.
After falling 20% over the past four months, I think the Pilbara Minerals share price is worth buying for the long-term demand for lithium as electric vehicle usage becomes more widespread.
