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

Man with his hand on his face looking at a falling share price chart on a tablet.
Materials Shares

Is the beaten down Mineral Resources share price a bargain buy now?

Let's see what Bell Potter is saying about the miner after Monday's selloff.

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.
Materials Shares

Why did the Core Lithium share price hit a wall in October?

The Core Lithium share price rally came to an abrupt end in October. But why?

Read more »

Businessman walking down staircase with suitcase, at sunrise
Materials Shares

Mineral Resources shares sink 7% on CEO exit and 'major actions'

This mining company's CEO is leaving following a scandal.

Read more »

A man wearing glasses and a white t-shirt pumps his fists in the air looking excited and happy about the rising OBX share price
Materials Shares

Why this ASX lithium stock almost doubled in value in October

This lithium miner made its shareholders smile last month. But why?

Read more »

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

Guess which ASX All Ords stock just rocketed 80%

What is getting investors excited about this stock today? Let's find out.

Read more »

two businessmen shake hands in a close up mid-level shot with other businesspeople looking on approvingly in the background.
Materials Shares

Core Lithium share price higher on 'invaluable' ex-Rio Tinto appointment

The lithium miner has made a new addition

Read more »

Two male ASX 200 analysts stand in an office looking at various computer screens showing share prices
Materials Shares

Here's what this leading broker is saying about Pilbara Minerals shares

Is now a good time to buy this lithium miner? Let's see what this broker is saying.

Read more »

A young man goes over his finances and investment portfolio at home.
Materials Shares

Should you buy Liontown shares after 'highly encouraging' quarter?

Bell Potter has given its verdict on this lithium miner.

Read more »