Time to buy this ASX lithium share as it dips below $9?

Could this stock recharge our returns?

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I'm looking at some ASX lithium shares as potential opportunities. The IGO Ltd (ASX: IGO) share price has dropped below $9 and it's looking very intriguing to me as it hits a 52-week low.

It's been a rough period for businesses involved in the lithium world. The lithium price is much lower than 12 months ago and it's down from June as well.

What's happening to the lithium price?

As reported recently by the Australian Financial Review, SQM – the world's second-largest lithium producer – thinks that the lithium price is going to decline as more lithium supply hits the market. That could be bad news for the profitability of ASX lithium shares.

SQM said that the lithium price fell because of too much inventory, particularly in Asia, as well as new supply coming online. The SQM CEO said this "could continue to have a negative impact on lithium prices in the short term."

The lithium giant is forecasting that global demand is going to increase by 20% this year and that electric vehicle sales will continue as the world focuses on the energy transition. But, there has been a softening of demand outside of China.

SQM is planning to build its inventory so that it's ready when purchasing rebounds.

Is the IGO share price an opportunity?

As we can see on the chart below, the IGO share price is down 40% from 6 September 2023, and it's down 45% from July 2023.

I like looking at ASX mining shares when they have suffered a significant sell-off. A lot of commodity prices and share prices tend to move in cycles, we just don't know when the stages of the cycle will change and how big the shifts will be.

There are a few reasons why I think this could be the time to look at the ASX lithium share. It's invested in a lithium-focused joint venture with partner Tianqi Lithium Corporation, which comprises a 51% stake in the Greenbushes Lithium Mine and 100% interest in a downstream processing refinery at Kwinana producing battery grade lithium hydroxide.

Long-term demand growth for lithium is expected, with the rise of electric vehicles and home/industrial batteries. It may take longer than a few months for the lithium price to start recovering, but I think the longer-term relationship between the supply, demand and price of lithium may mean that rising demand may outstrip supply.

It's also important to remember that IGO is not a pure lithium business, it has exposure to nickel, copper and cobalt in Western Australia. The decline of lithium doesn't mean bad news for the whole business.

What is the ASX lithium share valuation?

Now that the company has fallen below $9, the IGO share price is valued at under 8 times FY24's estimated earnings and it could pay a FY24 grossed-up dividend yield of just over 5%.

I think the business is a longer-term opportunity and I may invest soon. I've already bought Pilbara Minerals Ltd (ASX: PLS) shares, so I'm considering whether owning two stocks would be a good choice for that lithium recovery possibility.

Motley Fool contributor Tristan Harrison has positions in Pilbara Minerals. 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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