Lithium all feels too electric

Lithium is such a hot topic to the point that I’m being asked for my opinion by people while I’m having a morning coffee.

I quickly reply by saying something like, “if you’re suddenly interested in lithium stocks, it probably means everyone should get out”.

Now that I’ve upset my coffee drinking mates (mainly because they’re thin skinned)…….

my quick take on stock price of Pilbara Minerals (PLS:ASX) is a call for it to visit $1.80 around the September 22nd area.

(see the attached weekly chart below)

Where it moves after that will depend on the strength of the decline and other indicators or nuances in the price action.

Note the continual line at the bottom of the chart, 

this is its 200 week moving average which is currently floating around 71 cents.

Beyond its valuation fundamentals, a $51m loss at its latest fiscal year report wasn’t surprising to see. While a $175 million revenue in the past year makes it a little difficult to swallow buying shares at $6 billion market cap. A 35 times multiple on revenue is often seen in a technology stock.

Furthermore, buying PLS at $2.20 when its trading at 210% above its 200 week moving average is equally perilous.

This percentage is in the same stratosphere are many high flying assets and securities seen lately around the world, including Bitcoin.

Keep in mind that, that moving average should accelerate higher in the coming 6 months perhaps to the $1.20 mark.

While PLS falling to $1.20 would represent a ~ $3 billion destruction of market capitalisation, it would mathematically represent a digestible mean reversion which would also (ironically) equate to a 62% retracement of the rally which started a year ago.

This last scenario is entirely plausible.

August 30, 2021

by Rob Zdravevski

rob@karriasset.com.au