The Fortescue Metals Group Limited (ASX: FMG) share price has been moving in circles since the start of 2022. This comes as the company has been battling lower iron ore prices amid China’s COVID-19 lockdowns.
Nonetheless, investors appear to have mixed feelings about the value of Fortescue shares in the current climate.
At Wednesday’s market close, the mining giant’s shares finished 0.80% higher to $21.34.
How do you value Fortescue shares?
The most common way to value an ASX share is to calculate the company’s price-to-earnings (P/E) ratio. Traditionally, this metric is used to provide more clarity if a company is overvalued or undervalued.
A P/E ratio can be broken down as the relationship between a company’s share price and its earnings per share (EPS).
Currently, Fortescue has a P/E ratio of 7.33. The formula to work out the P/E ratio is the current share price divided by EPS.
Essentially, this means that the company can be viewed as cheap when compared to its peers. The world’s largest miner, BHP Group Ltd (ASX: BHP) holds a P/E ratio of 15.56, while Rio Tinto Limited (ASX: RIO) is around 9.31.
Fortescue released its half year results in mid-February, highlighting a fall across key financial metrics.
Nonetheless, management noted that it has continued to reinvest in the business and in growth.
For instance, the company’s major project, Iron Bridge has been progressing well with first production scheduled in December 2022.
Late last month, the team at UBS raised its 12-month price target on Fortescue shares by 4.9% to $17.10. This implies a potential downside of around 20%.
In addition, Morgans analysts also lifted their outlook on the miner’s share price by 2.9% to $19.10. While not as bearish as UBS’ assessment, this implies a downside of 10% based on the current Fortescue share price.
Fortescue share price summary
It’s been a rollercoaster ride for Fortescue shares, having moved unpredictably over the past 12 months. Its shares are up almost 5% since this time last year.
Based on valuation metrics, Fortescue has a market capitalisation of around $65.71 billion, with approximately 3.08 billion shares on issue.
The post How do you value the Fortescue share price in April 2022? appeared first on The Motley Fool Australia.
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More reading
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- Up 20% in a month: Is the Fortescue share price a buy?
- ASX 200 midday update: Magellan jumps, tech shares tumble
- Fortescue share price lifts amid $2b cap raise
Motley Fool contributor Aaron Teboneras 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 Bruce Jackson.
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