Are Core Lithium shares a bargain buy or overvalued?

This lithium miner's shares are down 80% since this time last year.

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When a company's shares drop 80% in space of a year, it's easy to think that they must be in bargain territory now.

Well, that is exactly what has happened to Core Lithium Ltd (ASX: CXO) shares over the last 12 months.

So, is this lithium miner a bargain buy? Or could its shares still be overvalued at current levels? Let's find out.

Why are Core Lithium shares down 80% in a year?

Investors have been rushing to the exits since this time last year for a number of reasons.

This includes softer-than-expected production guidance, the suspension of its underground development, the curtailing of production, and crashing lithium prices.

Unfortunately, with lithium prices showing no signs of improving materially in the near term, it seems quite likely that mining operations at the Finniss Operation will not be resuming any time soon.

Goldman Sachs recently commented:

While CXO is restructuring its business in response to the decrease in the spodumene price, we note that with the mining contract terminated and notice given on the processing contract, we expect that a near-term restart of the Finniss operation is increasingly unlikely.

It is for this reason that Goldman Sachs is forecasting revenue of $177.7 million in FY 2024 and then just a paltry $17.8 million in FY 2025.

Is it time to buy?

In light of the bleak revenue forecasts above, it will come as no surprise to learn that Goldman Sachs believes Core Lithium's shares are still overvalued despite their fall from grace.

The broker currently has a sell rating and 13 cents price target on them, which implies potential downside of 21% for investors.

But Goldman isn't alone in believing that its shares are still expensive. Earlier this week, Macquarie reaffirmed its neutral rating and cut its price target to 15 cents. Whereas, last week, Citi reiterated its sell rating and cut its price target down to just 11 cents. The latter would mean further downside of 33%.

Overall, investors may want to keep their powder dry and wait for a meaningful improvement in lithium prices before considering an investment. Until then, the risks appear firmly stacked against buyers and big capital losses seem to be a real possibility.

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 and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. 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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