Are Core Lithium shares dirt cheap or overvalued?

Man on a laptop thinking.

Core Lithium Ltd (ASX: CXO) shares have been under the pump over the last 12 months.

During this time, the lithium miner’s shares have lost 84% of their value.

To put this into context, if you had invested $10,000 into the company’s shares a year ago, you would only have $1,600 left today.

This means that to get your money back, Core Lithium’s shares would have to rebound approximately 550%.

But what is the likelihood of that happening? Well, in the near term it seems highly unlikely unless there is a huge increase in lithium prices in the near term.

That’s because a number of brokers believe that Core Lithium shares remain overvalued based on current lithium prices despite their fall from grace over the past 12 months.

Core Lithium shares could still be overvalued

One of those brokers is Citi, which currently has a sell rating and 11 cents price target on the miner’s shares. This implies potential downside of almost 27% from current levels.

Its analysts highlight that in recent months the company has lost its CEO, a non-executive director, suspended its operation, and terminated its mining services agreement.

The team at Goldman Sachs agrees with this view and has a sell rating and 12 cents price target on Core Lithium’s shares. This suggests potential downside of 20% from where its shares trade today.

The broker believes its shares are overvalued compared to its peers and appears to feel that a restart of the Finniss Operation could be some way off. It explains:

We remain Sell rated on: (1) Valuation, trading at a premium on ~1.3x NAV and an implied LT spodumene price of ~US$1,200/t (peer average ~1.1x & ~US$1,200/t), with the lowest average operating FCF/t LCE on a more moderated/deferred production restart/ramp up; (2) Ongoing risk to restart timing in the current pricing environment, with a mine restart highly unlikely ahead of the next wet season and, given the Grants open pit has ~12 months of life, likely tied to a development decision on BP33 (with its own funding risks) to support a new processing contract, increasing the risk of a longer gap in production; (3) Potential resource growth from ongoing exploration (including revisiting the gold, uranium and base metal exploration projects), though development likely longer dated.

All in all, not everything that falls heavily is necessarily cheap. And these brokers certainly believe that is the case with Core Lithium.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.