Allkem share price can jump 45% even if lithium prices fall: Goldman Sachs

Goldman Sachs believes this lithium share can rise even as prices of the battery making ingredient fall.

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Key points
  • Allkem shares are down meaningfully from their highs
  • Goldman Sachs sees this as a buying opportunity
  • Its analysts believe Allkem shares can rise materially even if lithium prices crash

The Allkem Ltd (ASX: AKE) share price is having a strong session.

In morning trade, the lithium miner's shares are up over 3% to $10.62.

However, despite this, the Allkem share price remains down materially from its record high of $16.75.

A young woman lifts her red glasses with one hand as she takes a closer look at news.

Image source: Getty Images

Can the Allkem share price keep rising?

The good news is that despite being bearish on lithium prices and forecasting them to pullback significantly next year, Goldman Sachs is very bullish on Allkem's shares.

This is due to its belief that the company's production growth and downstream optionality will keep its earnings strong and offset the pressure caused by lower lithium prices.

According to a note from Monday, its analysts have retained their buy rating and $15.40 price target on its shares. This implies potential upside of 45% for investors from current levels over the next 12 months.

Commenting on its production growth, the broker said:

Allkem has one of the best production outlooks in our lithium coverage, with broad-based growth optionality, second only to Mineral Resources on an LCE basis when including downstream hydroxide production on an equity basis. This drives our forecast for the company's equity LCE production growth of >4x by FY27E, supporting earnings rebounding to near current record levels despite the declining lithium price environment.

In addition, the broker highlights that the market is undervaluing its assets. This is despite its competitive brine cost curve position. It adds:

Allkem has the largest lithium metal contained resource base amongst our coverage when factoring in South American brine assets and second largest reserve (excluding Olaroz due to ongoing reserve re-modelling). However, AKE's aggregate resource is trading at a significant discount to peers, despite a competitive brine cost curve position.

All in all, Goldman appears to see recent weakness in the Allkem share price as a great buying opportunity for investors.

Motley Fool contributor James Mickleboro has positions in Allkem. 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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