Is BHP (ASX:BHP) Undervalued After Recent Share Price Weakness? A Fresh Look at Its Valuation

BHP Group (ASX:BHP) shares have seen a dip of over 5% in the past week. The stock is now trading near A$40 after a month of gradual pressure. Investors are weighing recent market moves against the company’s solid multi-year total returns.

See our latest analysis for BHP Group.

BHP Group’s share price has faced short-term pressure lately, dropping more than 7% over the past month as investors reassess risk and outlook amidst shifting market sentiment. Still, the company’s five-year total shareholder return of 66% reminds us that long-term holders have enjoyed solid rewards. However, momentum currently appears a little faded alongside recent volatility.

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So, as BHP’s share price hovers under recent pressure, is this a rare chance to buy into an industry giant at a discount? Or is the market already pricing in all of the company’s future potential?

Most Popular Narrative: 9.8% Undervalued

Compared to BHP Group’s last close of A$40.37, the most widely followed narrative estimates a fair value much higher, suggesting meaningful upside. The discount rate used reflects current sector risks and future growth assumptions, creating a compelling valuation story.

The company's focus on long-life, low-cost assets in world-class jurisdictions positions BHP as a reliable supplier. This attracts long-term supply agreements and may support premium pricing and more stable long-term cash flow. Disciplined capital management, including a reduction in medium-term capex guidance, continued high free cash flow generation, and a strong balance sheet, enhances BHP's capacity for sustained shareholder returns through dividends and buybacks. This positively impacts return on equity.

Read the complete narrative.

Want to know the key ingredients fueling this valuation? The answer lies in bold future profit projections, wider margins, and robust earnings targets few expect for the industry. Click to discover which assumptions are driving BHP’s fair value higher.

Result: Fair Value of $44.73 (UNDERVALUED)

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

However, heavy reliance on iron ore demand from China and project execution risks could challenge BHP's outlook. These factors may potentially temper future earnings growth.

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

Build Your Own BHP Group Narrative

If you see things differently or like taking a hands-on approach, you can shape your own valuation story in just a few minutes. Do it your way

A great starting point for your BHP Group research is our analysis highlighting 4 key rewards and 1 important warning sign 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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