Core Lithium share price falls after being hit with sell rating from Goldman Sachs

Goldman Sachs believes this lithium share is overvalued…

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The Core Lithium Ltd (ASX: CXO) share price is under pressure again on Thursday.

In morning trade, the lithium developer's shares are down 2% to $1.28.

Why is the Core Lithium share price falling?

Investors have been hitting the sell button today after the lithium developer was the subject of a bearish broker note out of Goldman Sachs.

According to the note, the broker has initiated coverage on the company's shares with a sell rating and $1.00 price target.

Based on where Core Lithium's shares are trading this morning, this implies potential downside of 22%.

What did the broker say?

The broker believes that investors have overvalued Core Lithium's Finniss project. Particularly given the prospect of lithium prices falling materially in the coming years. It commented:

Core Lithium's Finniss project will be Australia's next lithium producer, with spodumene production scheduled for 1H CY23, where we factor in an average ~175ktpa production over a ~12-year M&I resource life. However, while resource upside looks likely, the required magnitude to support the capacity expansion/life extension/future downstream that is currently priced into the stock looks significant, in our view, particularly given the upside case is unlikely to be achieved before lithium prices decline (GSe from 2H CY23).

Goldman also highlights that the Core Lithium share price is trading at a premium to peers and on low free cash flow multiples. It adds:

With production/cost risks as the project moves between mining configurations, and the stock trading well above peers at 1.5x NAV (~US$2,400/t LT spodumene) on the lowest average operating FCF/t LCE, we initiate on CXO with a relative Sell rating and a 12-month PT of A$1.00/sh, implying 23% downside.

All in all, the broker believes there is a better option for investors looking for lithium exposure right now.

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 no position in any of the stocks mentioned. 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.

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