The ASX lithium share Pilbara Minerals Ltd (ASX: PLS) has suffered a very painful decline in recent times. It has dropped by 52% in the last year alone, as the chart below shows.
It's important not to anchor our thoughts back to previous share price levels. Just because it was at $5 a couple of years ago doesn't mean it's destined to get back there any time soon. However, it doesn't need to recover to $5 to make great returns from here.
A recovery back to $3 would mean capital growth of more than 60%. Let's consider whether the ASX lithium share is capable of producing good returns and whether it's a buy.
There's one thing that investors need to pay attention to the most, in my view.
Image source: Getty Images
Volatile lithium price
The lithium price is now a fraction of what it was a couple of years ago.
In the FY25 first-half, the business reported that its average lithium sold price was US$668 per tonne, down 58% compared to what it achieved in the first half of FY24.
As a commodity business, the company's production costs don't change much between results. Therefore a fall in the revenue per tonne leads to a significant decline in profit.
It reported that operating profit (EBITDA) fell 89% to $48 million, and it saw a 132% plunge of statutory net profit after tax (NPAT) to a loss of $69 million. Profit generation is obviously integral for most businesses, including Pilbara Minerals shares.
However, there was one positive related to the lithium price. Pilbara Minerals experienced a 3% rise of the realised price to US$700 per tonne for the three months to December 2024 compared to the three months to September 2024 where the realised price was US$682 per tonne.
Any increase in the commodity price is very useful for the business because of the positive effect of operating leverage.
Solid long-term industry dynamics
The elevated Pilbara Minerals share price from a couple of years ago was due to investor optimism on how much lithium demand could grow in the longer-term. While the short-term is challenging, the company still points to a promising long-term outlook.
The ASX lithium share pointed out in its HY25 result presentation that there were 1.3 million electric vehicle sales in January, representing 18% year-over-year growth.
Pilbara Minerals cited research that showed electric vehicle (EV) sales are forecast to grow by 19% year over year in 2025. EV sales could increase at a compound annual growth rate (CAGR) of 17% to 2030.
Overall, lithium demand is expected to increase by around 2.5x by 2030 at a CAGR of around 16%.
Pilbara Minerals management said:
[The] Lithium market has historically demonstrated periods of pricing volatility. This pricing volatility has translated to wide variations in investment levels into the industry. This pattern has the potential to continue until the industry is further matured.
My 2 cents on Pilbara Minerals shares
The business is clearly going through a rough period. It's difficult to know what's going to happen next, though it was promising that the latest reported quarter saw an increase in the lithium price.
If the lithium price can continue increasing, then the Pilbara Minerals share price could be materially undervalued.
With a lower lithium price, additional global lithium production growth may have slowed enough to materially help the future supply and demand dynamics, providing support for the lithium price.
It's a higher risk idea, but I think the ASX lithium share could be an opportunistic buy today. However, a recovery would take a while and I wouldn't bet the house.
