Fortescue shares slump 6% from a multi-year high: Buy, sell or hold?

Fortescue Ltd (ASX: FMG) shares have tumbled 1.32% in afternoon trade on Tuesday. At the time of writing, the shares are trading hands at $21.66.

The latest slump continues a run of three consecutive days of declines. The shares spiked to a two-year high of $22.99 on Thursday last week but have since shed 6% of their value.

They’re now down 2% for the year to date but 34% higher than this time 12 months ago.

What happened to Fortescue shares?

The iron ore miner’s shares rallied 15% in early May week as investors broadly rotated back into slumping ASX mining stocks. 

Investor sentiment appeared to briefly reverse from earlier this year, when many were concerned about rising costs, fears about a shortage of oil supply, and geopolitical uncertainty around conflict in the Middle East. Renewed confidence in the outlook for iron ore then acted as a strong tailwind for the miner’s share price.

Trading Economics data shows that the price of iron ore spiked higher again in May. Just over a week ago, the price of iron ore spiked to a multi-year high of over US$111 per tonne. It has slumped slightly ever since but is still 3.225% higher than a month ago and 11% higher than last year. 

It also looks like the market has become more optimistic about Fortescue’s decarbonisation and green-energy investments after management highlighted potential future fuel savings and operational efficiencies.

The company said it is committed to spending US$6.2 billion on decarbonisation, including a US$680 million investment to accelerate its 200-megawatt Pilbara Green Energy Project. 

Overall market sentiment and improved confidence explains why the shares spiked to a multi-year high late last week. But when it comes to understanding today’s slump, it’s not as clear.

There hasn’t been any price-sensitive company news to explain the turnaround since the share price spiked. It’s likely that the latest sell-off is mostly due to investors selling their shares and taking their gains off the table after the price rally. 

Is the latest slump a buying opportunity?

It doesn’t look like it.

While Fortescue shares rallied last week, data suggests that analysts don’t think the rally can continue. In fact, they expect the opposite.

TradingView data shows that eight out of 17 analysts have a sell or strong sell rating on the shares. Another eight have a hold rating while just one analyst rates the iron ore miner’s shares as a strong buy.

The average $18.90 target price implies a 13% downside at the time of writing. Meanwhile, some expect the shares to crash another 32% to $14.76 over the next 12 months.

The post Fortescue shares slump 6% from a multi-year high: Buy, sell or hold? appeared first on The Motley Fool Australia.

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Motley Fool contributor Samantha Menzies 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.