Buy or sell? What this broker is saying about Core Lithium shares

Is it time to buy this lithium stock or should you keep your powder dry?

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Core Lithium Ltd (ASX: CXO) shares had a decent session on Wednesday.

In response to the release of the lithium miner's quarterly update, investors bid its shares up 2% to $1.00.

Where next for Core Lithium shares?

According to a note out of Goldman Sachs, its analysts didn't see enough during the last quarter to change their bearish view on Core Lithium shares.

As a result, the broker has reiterated its sell rating and 80 cents price target. This suggests that the company's shares could tumble as much as 20% from current levels.

What did the broker say?

Goldman continues to believe that the market is wrong when it comes to valuing Core Lithium shares. The broker estimates that the market is basing its valuation on a significantly higher long term lithium price based on the the multiples that it trades on compared to peers. It explains:

We rate CXO a Sell on: 1) Valuation at ~1.4x NAV (peer average ~1.1x), pricing in ~US$1,600/t spodumene (peer average ~US$1,100/t), while also having the lowest average operating FCF/t LCE, 2) Large resource upside still required, where CXO remains the smallest LCE resource in our coverage, and 3) Production risk through ramp up of new mines, while any downstream/tolling benefit looks longer dated.

And while Core Lithium recently announced an extension to its drilling campaign, Goldman Sachs doesn't believe this is enough to change its view. It adds:

We reiterate that while further potential resource expansions could be promising it would need to be significant to support the asset life/capacity still priced in to the stock, where coming at depth likely limits near-term production upside with new developments unlikely to come online in time to benefit from the current pricing environment.

Its analysts conclude:

Our NAV increases 3% to A$0.96/sh (from A$0.67/sh) on factoring in the additional M&I resources taking our LOM to nearly 20 years at Finniss, and our 12m PT is unchanged at A$0.80/sh.

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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