What is fair value for the Core Lithium share price?

Is this lithium miner cheap or overvalued? Let's see if we can find out…

| More on:
A woman sits at a computer with a quizzical look on her face with eyerows raised while looking into a computer, as though she is resigned to some not pleasing news.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Core Lithium Ltd (ASX: CXO) shares are among the most divisive on the Australian share market.

There are some investors that believe the lithium miner's shares are great value and there are others that feel its shares are vastly overvalued.

A testament to the latter is that Core Lithium is one of the most shorted shares on the Australian share market.

As covered here at the start of the week, Core Lithium had a sizeable 9.7% of its shares held short.

To put that into context, with a market capitalisation of approximately $1.9 billion, that means that almost $200 million of investor funds is betting on its shares tumbling deep into the red.

And while short sellers don't always get it right, they rarely bet so big on a share price declining if there isn't some substance behind their view.

The bull side of the equation

It is worth noting that analysts at Macquarie don't agree with short sellers. In fact, the broker appears to believe that Core Lithium shares are great value at the current level.

According to a note from last month, the broker has retained its overweight rating and $1.30 price target on the lithium miner's shares.

This implies potential upside of 30% for investors over the next 12 months.

What is fair value?

Fair value is difficult to ascertain given the mixed views on the company.

However, most lithium miners are trading at a discount to their net asset value (NAV). Whereas the Core Lithium share price has been trading at a material premium to its NAV.

For example, in April Citi highlighted that "CXO trades on ~1.3x P/NAV vs peers on ~0.8-0.9x P/NAV." It is for this reason that Citi feels that fair value is 75 cents for the company's shares.

Its true fair value is probably somewhere in the middle of Citi's and Macquarie's estimates. Though, where lithium prices go from here could have a big say in things. If they strengthen, its shares could gravitate towards Macquarie's valuation. But if they weaken, don't be surprised if they slide towards Citi's valuation.

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.

More on Materials Shares

A woman jumps for joy with a rocket drawn on the wall behind her.
Materials Shares

Why is this ASX 300 battery tech stock jumping 11% today?

Another agreement and big plans are getting investors excited on Monday.

Read more »

two men in hard hats and high visibility jackets look together at a laptop screen that one of the men in holding at a mine site.
Resources Shares

'I hate what I have done': Mineral Resources share price down as Ellison laments actions

Managing Director Chris Ellison says he deeply regrets the impact of his 'error of judgement'.

Read more »

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price
Materials Shares

Why is this ASX lithium stock jumping to a 52-week high today?

This lithium stock is smashing the market this year despite all the doom and gloom in the industry.

Read more »

Projection of two hands being shaken on a deal.
Materials Shares

Sayona Mining shares sink 13% on Piedmont Lithium merger news and capital raise

This merger will create the largest lithium producer in North America.

Read more »

Miner looking at a tablet.
Materials Shares

Down 28% in 2024, why this ASX 200 lithium stock could now be 'deeply undervalued'

The ASX 200 lithium stock has drawn plenty of investor attention over the past month.

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Materials Shares

Buy BHP shares for a 20%+ return

Goldman Sachs expects big total returns from this mining giant.

Read more »

Miner looking at a tablet.
Materials Shares

Here's why ASX uranium shares are ripping higher today

Uranium shares are smashing the markets today.

Read more »

A female broker in a red jacket whispers in the ear of a man who has a surprised look on his face as she explains which two ASX 200 shares should do well in today's volatile climate
Materials Shares

2 ASX 200 lithium stocks to buy for big returns

Which stocks are analysts tipping as buys right now? Let's find out.

Read more »