Exploring BHP (ASX:BHP) Valuation After Recent Share Price Movements

If you’re watching BHP Group (ASX:BHP), the recent shift in its stock price might have you wondering if there’s something behind the move or if it’s just another day in the life of a top-tier mining company. With no single event or headline grabbing the market's attention, it’s the kind of movement that prompts investors to ask whether the market is sending a signal, or if there’s an opportunity forming beneath the surface. So how does the latest price action fit into the broader story for BHP Group? Over the past year, shares have delivered a 7% total return and strengthened further in the past 3 months with a 9% gain, though momentum has seen its ups and downs. Even as revenue shrank slightly this year, net income edged higher, highlighting a business that continues to adjust to changing market dynamics. The real question now is whether these moves have left BHP Group undervalued, or if the market has already priced in all the future growth expectations. Could there be hidden value, or are investors chasing yesterday’s gains?

Most Popular Narrative: 4.8% Undervalued

The prevailing narrative points to BHP Group trading below its estimated fair value, suggesting a modest level of undervaluation by the market.

Disciplined capital management, including a reduction in medium-term capex guidance, continued high free cash flow generation, and a strong balance sheet all enhance BHP's capacity for sustained shareholder returns through dividends and buybacks. These factors positively impact return on equity.

Curious about which numbers really move the needle for BHP's valuation? The most widely followed narrative is built around ambitious profitability goals, steady cash flow, and a bold assumption about future earnings multiples. Want to see exactly what drives analysts to call BHP undervalued, despite market ups and downs? Dive into the full story to uncover the precise growth forecasts and profit assumptions at the heart of this fair value estimate.

Result: Fair Value of $42.87 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, execution missteps in major projects or a sharp drop in Chinese demand could quickly change the outlook for BHP’s future growth story.

Find out about the key risks to this BHP Group narrative.

Another View: Testing Fair Value with a Different Lens

The SWS DCF model takes a different approach, assessing BHP based on its projected cash flows rather than focusing solely on earnings multiples. Interestingly, it also signals the stock may be undervalued. Could both views be missing crucial risks or upside?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out BHP Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own BHP Group Narrative

If you see things differently or want to take a hands-on approach, feel free to dive into the data and shape your own perspective in just a few minutes. Do it your way

A great starting point for your BHP Group research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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