Lynas Rare Earths (ASX:LYC): Is the Recent Rally Justified by Its Current Valuation?

Lynas Rare Earths (ASX:LYC) has been drawing fresh attention from investors after its shares surged almost 39% over the past month. There was no single headline event to drive the move. Anytime a stock jumps this sharply, it sparks renewed conversations about what the market is seeing ahead and whether underlying fundamentals truly support the optimism. With rare earths playing a bigger role in clean energy technology and supply chain diversification, it is understandable that investors would take notice when Lynas pushes higher for reasons that are not immediately obvious.

Looking more broadly, Lynas Rare Earths has been on a roll recently. The stock is not just up over the past month but has seen a remarkable 87% climb over the past 3 months and a 118% gain over the last year. Longer-term holders have also been handsomely rewarded, with the share price up more than 5 times over the past 5 years. While there is evidence of sustained momentum, it is not uncommon to see such runs pause for breath, especially if fundamental growth or risks shift.

With all of this in mind, is Lynas trading at a reasonable valuation after this climb, or is the market simply pricing in more growth to come?

Most Popular Narrative: 48.8% Overvalued

According to community narrative, Lynas Rare Earths is currently viewed as significantly overvalued compared to its estimated fair value. Analysts are considering robust growth potential, but also substantial execution risks.

The successful ramp-up and completion of new capacity at Mt Weld, along with the start of commercial production of separated Heavy Rare Earths (Dy/Tb) in Malaysia, positions Lynas to increase output and expand its product offerings. This could drive higher future revenues as global demand for critical materials used in EVs and renewables accelerates. Recent partnership announcements and MOUs, such as those with JS Link in Korea and Kelantan in Malaysia, as well as ongoing U.S. Department of Defense relationships, support Lynas's integration into non-Chinese supply chains. These developments may lead to new long-term offtake contracts, improved pricing power, and reduced earnings volatility in the future.

Want to know why the fair value is so much lower than the current price? The analysts’ narrative points to a high-stakes growth plan with bold financial forecasts and ambitious profit targets. Curious whether these projections are realistic or overly optimistic? Explore further for the underlying assumptions and discover what is fueling the price debate around Lynas Rare Earths.

Result: Fair Value of $9.99 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts. However, persistent regulatory uncertainty in Malaysia or setbacks in new project execution could quickly shift market sentiment and challenge bullish growth projections. Find out about the key risks to this Lynas Rare Earths narrative.

Another View: Discounted Cash Flow Paints a Different Picture

While the current consensus sees Lynas Rare Earths as overvalued using typical market multiples, our DCF model comes to a more optimistic conclusion. This suggests the shares may in fact be undervalued. Which signal will the market trust?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Lynas Rare Earths for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Lynas Rare Earths Narrative

If you see things differently or want to dig into the numbers yourself, you can shape your own view in just a few minutes. So why not do it your way?

A great starting point for your Lynas Rare Earths research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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