ASX 200 share Lynas Rare Earths Ltd (ASX: LYC) has taken a beating in 2024, along with the broader resources basket.
Shares in the rare earth miner have fallen 12% over the past year and are trading at $6.11 apiece at the time of writing.
With production issues and market challenges, is this ASX 200 stock in trouble, or is it a potential buy at these depressed levels?
Let's see what the experts think.
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What's happening with this ASX 200 share?
The current trading range of Lynas' share price is a sharp decline from its peak of $9.30 two years ago.
Even before then, the stock received a strong bid alongside the "COVID-19 rally" that ensued from 2020 to 2021.
It hit an all-time high of $11.09 per share in January 2022 and has been on a linear descent ever since, as seen in the chart below showing returns dating back five years.
Despite the drop, several brokers remain optimistic on the ASX 200 share.
Bell Potter has a buy rating on Lynas and a price target of $8.50 per share, with a 40% upside potential over the next year.
The broker's optimism is driven by the long-term outlook for rare earths, which are crucial for technologies like electric vehicles (EVs) and renewable energy.
As we transition to these technologies, demand for rare earths could move in unison.
Goldman Sachs also remains positive but with a slightly lower price target. The broker maintains a buy rating on Lynas but values the stock at $7.00.
It believes Lynas' focus on long-term offtake contracts, rather than relying on the spot market, is a smart strategy.
Goldman's valuation implies 14.6% upside potential from the time of writing – behind fellow broker Ord Minnett, who values Lynas at $8 apiece.
Ord also rates the ASX 200 share a buy, viewing it as a safe bet to gain exposure to the volatile EV sector.
A quick check of CommSec also shows that Lynas is rated as a buy based on the consensus of analyst estimates.
Challenges and headwinds
You might be wondering what brought the ASX 200 share to such depressed levels in the first place.
Yes, it is a function of lower pricing for its underlying rare earth resource in the market. True, it is also a function of lower EV demand and an oversupply of EV battery metals, potentially adding to this.
However, Lynas has also faced financial setbacks. In its latest quarterly update, gross sales revenue dropped 13.3% year-on-year to $136.6 million, and the production of rare earth oxides (REO) was halved.
These declines were mainly due to maintenance issues at Lynas's Malaysian facility, which disrupted production.
Despite these challenges, Lynas plans to ramp up production. The company aims for 10,500 tonnes of production per annum. Last week, it also upgraded its mineral resource estimates by 63%.
If it meets this challenge, there's no saying what it means for the ASX 200 share.
Foolish Takeaway
Lynas Rare Earths is at a critical point. While the stock has faced significant headwinds, demand for rare earth elements remains strong, driven by electric vehicles and renewable energy.
But it is 'in trouble'? The experts would tend to disagree. Multiple brokers continue to rate Lynas as a buy, seeing the dip as a potential opportunity.
