There could be a lot of pain ahead for Fortescue’s shares…
The post Fortescue share price sinks: Broker warns that it could fall a further 34% appeared first on The Motley Fool Australia. –
The Fortescue Metals Group Limited (ASX: FMG) share price is tumbling lower on Friday.
In morning trade, the iron ore giantâs shares are down over 4% to $20.63.
Will the Fortescue share price rebound?
Unfortunately for shareholders, one leading broker believes this could be the start of greater declines.
According to a note out of Goldman Sachs this morning, its analysts have reiterated their sell rating and cut their price target down to $13.50.
Based on the current Fortescue share price, this implies potential downside of over 34% for investors over the next 12 months.
Why is Goldman bearish?
The main reason for Goldmanâs bearish view on the Fortescue share price is its valuation.
It highlights that the companyâs shares are trading at a significant premium to rivals BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
For example, the broker estimates that Fortescue’s shares are trading at 1.71x forward net asset value (NAV). Whereas BHP is trading at 1.1x and Rio Tinto is trading at 0.9x.
It’s a similar story for its EV/EBITDA multiple. Goldman estimates that the Fortescue share price currently trades at 6.7x forward EV/EBITDA, whereas BHP is 4.5x and Rio Tinto is 3.9x.
Anything else?
Outside its valuation, the broker has concerns over the âwidening of low grade 58% Fe product realisations over the medium to long term due to high coking coal prices and high steel mill margins.”
It also sees âexecution and ramp-up risks on the Iron Bridge project and âuncertainties around Fortescue Future Industries (FFI) diversification and Pilbara decarbonisation.â
All in all, the broker believes investors would be better off buying BHP and Rio Tinto shares instead of Fortescue. It has buy ratings on both with price targets of $50.80 and $131.00, respectively.
The post Fortescue share price sinks: Broker warns that it could fall a further 34% appeared first on The Motley Fool Australia.
Wondering where you should invest $1,000 right now?
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now
See The 5 Stocks
*Returns as of January 12th 2022
setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()
More reading
Here’s why the Fortescue share price is 8% higher so far in June
Is now the time to load up on Fortescue shares?
These were the best performing ASX 200 shares last week
Why Altium, Fortescue, PeopleIn, and REA shares are storming higher
Why are the ASX 200 iron ore giants outperforming on Friday?
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.
