Core Lithium Ltd (ASX: CXO) shares have taken an absolute beating this year, down 53% at the time of writing.
But you can't blame the company. The entire ASX lithium basket has taken a pounding as the price of lithium itself compressed to two-year lows.
Shares in the small-cap lithium miner now trade at their same levels as December 2020.
One firm predicts they could slide even further. Novus Capital's John Edwards rates the stock a sell, urging investors to park their hard-earned capital elsewhere. Let's take a look.
Image source: Getty Images
What's causing the pressure on Core Lithium shares?
Core lithium shares have been sold off, but it's not just the price of lithium driving the wheel. The company has faced mounting fiscal pressures as it grapples with falling lithium demand.
Prices of the battery metal are currently at CNY 71,500 per tonne, down from all-time highs of CNY 597,500 in November 2022.
The metal carries such lower prices because "the overcapacity for electric vehicle batteries in China drove producers to lower asking prices for inputs across the supply chain", according to Trading Economics.
It also notes that global supply is expected to "soar by nearly 50% this year".
The company felt this heavily at the financial level. It reported a negative free cash flow of $165 million in FY24 against revenues of more than $189 million.
Adding to the negative sentiment, Macquarie recently downgraded its rating on several ASX lithium stocks. This includes Core Lithium shares, which it rates a sell, amid concerns about lithium oversupply.
In fact, it downgraded the top 5 ASX lithium companies to either a hold or sell.
No near-term upside in sight
Investors may or may not know that Core Lithium's flagship Finniss lithium project is currently under care and maintenance.
While the company has turned its exploration sights to other commodities like gold and base metals, Novus Capital remains sceptical.
The firm's John Edwards has set a target of just 9 cents on the stock, suggesting potential downside risk for investors. According to The Bull:
The company owns the Finniss lithium operation in the Northern Territory. The operation has been placed in care and maintenance given a global lithium glut has led to a price plunge from 2023.
The company is exploring for gold and base metals. We prefer other stocks in the absence of lithium mining. CXO's share price has fallen from 39 cents on October 30, 2023, to trade at 11 cents on October 24, 2024. Our share price target is 9 cents.
Should Novus' projections come to fruition, you're looking at another 20% downside in Core Lithium shares at the time of writing.
This would bring the stock to its lowest levels since November 2020.
Final Thoughts
Core Lithium shares face an uphill battle in a bearish lithium market. Support is weak for the stock, and Novus Capital's forecast suggests more pain could be ahead.
The share is down more than 66% in the past year.
