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Is Fortescue Metals Group Limited (ASX:FMG) Undervalued?

Asher Wright

Today we’re going to take a look at the well-established Fortescue Metals Group Limited (ASX:FMG). The company’s stock saw significant share price volatility over the past couple of months on the ASX, rising to the highs of A$5.26 and falling to the lows of A$4.55. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Fortescue Metals Group’s current trading price of A$4.9 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Fortescue Metals Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for Fortescue Metals Group

What’s the opportunity in Fortescue Metals Group?

Good news, investors! Fortescue Metals Group is still a bargain right now. According to my valuation, the intrinsic value for the stock is A$7.23, but it is currently trading at A$4.9 on the share market, meaning that there is still an opportunity to buy now. What’s more interesting is that, Fortescue Metals Group’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Fortescue Metals Group look like?

ASX:FMG Future Profit Dec 29th 17

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Fortescue Metals Group, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Although Fortescue Metals Group is currently undervalued, the negative outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to Fortescue Metals Group, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on Fortescue Metals Group for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Fortescue Metals Group. You can find everything you need to know about Fortescue Metals Group in the latest infographic research report. If you are no longer interested in Fortescue Metals Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.