It's been a wild 12 months for Fortescue Metals Group Limited (ASX: FMG) shareholders!
The share price fell below $2 in 2016 as the iron ore price plunged to around US$20 per tonne and many analysts questioned whether the business could continue to operate with its large debt load.
Unbelievably, no more than 14 months later the share price surged over $6 as the demand for iron ore soared and the spot iron ore price rose above $100 yet again. Fortescue wisely used these funds to pay down debt and now it appears one of the best-placed miners on the ASX.
Where to from here?
Today the share price sits at around $4.85, putting the company on a trailing price to earnings ratio of around 11 and dividend yield of 4%, fully franked. The trailing figures don't paint a particularly accurate picture however, as Fortescue will report vastly different numbers this year owing to the higher average price received per tonne of ore sold.
For example, Fortescue reported a profit of $1.2 billion for the 2017 first half, compared with $1.3b for the whole 2016 financial year.
Now that we're nearly through the 2017 financial year, it's worth having a look at what analysts estimate Fortescue will report for its full year result in August. Based on the mean forecast of the analysts that research the company:
- Net profit of $2.3b ($up from 1.3b)
- Earnings per share of 81 cents (up from 42 cents)
- Dividend per share of 34 cents (up from 20 cents)
This would place Fortescue on a price to earnings ratio of just 6 and dividend yield of 7% fully franked!
Is Fortescue Metals Group Limited cheap again?
The problem with Fortescue is that it's essentially impossible to predict what the company's profit will be in the coming years. Unlike companies that can reasonably control the price of the goods they sell, Fortescue is a price taker and demand for the group's ore is heavily linked to the requirements of China and India.
I believe there are definitely better investment opportunities than Fortescue available at the moment. Here's an example:
