Is It Too Late to Invest in BHP After Its Strong Multi Year Share Price Run?

• If you are wondering whether BHP Group is still attractively priced today or if most of the upside has already been captured by the market, this breakdown will help you think it through.
• The stock has quietly pushed higher, up 1.3% over the last week, 5.4% over the past month, and 12.9% year to date, adding to a 66.0% gain over five years.
• These moves have come as investors refocus on long term demand for iron ore, copper and other key commodities that BHP produces, as well as shifting expectations around global interest rates and economic growth. Broader headlines about decarbonisation, infrastructure investment and supply security have also kept diversified miners like BHP in the spotlight.
• On our checklist of six valuation tests, BHP scores four out of six, suggesting it screens as undervalued on several fronts but not across the board. You can see the detailed breakdown in our valuation score. Next we walk through what different valuation approaches indicate about BHP today, and finish with a way to tie those methods together into a clearer view of long term value.

Find out why BHP Group's 12.6% return over the last year is lagging behind its peers.

Approach 1: BHP Group Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth by projecting the cash it can generate in the future, then discounting those cash flows back to what they are worth in today’s dollars.

For BHP Group, the latest twelve month free cash flow is about $10.4 billion. Analysts provide explicit forecasts for the next few years, and Simply Wall St then extrapolates those estimates further out using a 2 stage Free Cash Flow to Equity model. Under this approach, BHP’s free cash flow is projected to be around $10.2 billion in 2030, with intermediate years fluctuating but broadly remaining in the high single digit billions.

When these future cash flows are discounted back to today, the model suggests an intrinsic value of about A$46.49 per share. Compared with the current share price, this implies the stock is roughly 3.0% undervalued, which is a very small margin and within the range of normal market noise rather than a clear bargain.

Result: ABOUT RIGHT

BHP Group is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for BHP Group.

Approach 2: BHP Group Price vs Earnings

For profitable, established businesses like BHP Group, the price to earnings (PE) ratio is a straightforward way to gauge how much investors are willing to pay for each dollar of profit. In general, faster growing and lower risk companies justify higher PE ratios, while slower growth or higher uncertainty tend to cap what the market is comfortable paying.

BHP currently trades on a PE of about 16.9x. That sits below both the wider Metals and Mining industry average of roughly 21.8x and the peer group average of around 20.2x, suggesting the market is applying a discount to BHP relative to similar companies.

Simply Wall St also estimates a proprietary Fair Ratio of 28.1x for BHP’s PE. This Fair Ratio reflects what investors might reasonably pay given BHP’s earnings growth outlook, margins, industry, market value and specific risks, making it a more tailored benchmark than simple peer or industry comparisons. With the Fair Ratio well above the current 16.9x, this framework points to the market undervaluing BHP on an earnings multiple basis.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your BHP Group Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, a simple tool on Simply Wall St’s Community page that lets you spell out your story for BHP Group, link that story to explicit forecasts for revenue, earnings and margins, and then turn those forecasts into a dynamic fair value you can compare to today’s price to inform a view on whether to buy, hold or sell. The Narrative automatically updates as new news or earnings arrive. For example, one investor might build a bullish BHP Narrative around strong long term demand for copper and potash, resilient margins and a fair value closer to the high end of recent analyst targets around A$46.55. A more cautious investor could create a bearish Narrative that focuses on legal, regulatory and China demand risks, assumes slower growth, thinner margins and a fair value nearer the low end around A$35.82. This gives both investors a clear, numbers backed way to express and track their view over time.

Do you think there's more to the story for BHP Group? Head over to our Community to see what others are saying!

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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