Does South32’s 22% Surge Signal a Turning Point for Investors in 2025?

If you have South32 on your watchlist, you are probably asking the same question as many other investors: is now the right time to buy, sell, or hold? Recent weeks have been anything but quiet for the stock. In just the last month, South32's share price has surged 21.8%, including a 14.8% bump in the past week alone. Such sharp moves have gotten everyone’s attention and sparked debates about whether this signals the start of a longer-term rebound or just a blip on the radar.

Curiously, this run-up comes against the backdrop of a choppy year overall. Year-to-date, South32 is still down 8.1%, and over the past twelve months, the return stands at -9.2%. However, if you zoom out to a five-year perspective, South32 posts an impressive 81.0% gain. Clearly, the company has navigated some turbulence but also delivered strong long-term returns for patient shareholders.

Much of this recent excitement can be tied to improving sentiment toward resource stocks and renewed optimism around global commodity demand. Investors appear to be recalibrating their risk appetite, and South32 has looked like one of the early beneficiaries. Still, the numbers show that South32 scores a 2 out of 6 on our standard valuation checklist. This indicates that while it has some signs of undervaluation, it's not flashing a strong bargain across the board. Here, we break down exactly how we arrive at this valuation score and explore the most common ways analysts measure value. Be sure to keep an eye out, because there may be an even more insightful approach to South32’s worth waiting at the end of our analysis.

South32 scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: South32 Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the intrinsic value of a company by projecting its future free cash flows and discounting them back to their present value. In essence, this model tries to calculate what all of South32's expected future earnings are worth in today's dollars.

According to the DCF analysis, South32's current free cash flow (FCF) is $262 million. Analyst estimates anticipate significant growth, with FCF projected to reach $441 million in 2028. Although analyst forecasts only extend five years, further cash flow increases have been modeled by Simply Wall St. Their projections show FCF rising each year for the coming decade.

The result of this DCF approach is an estimated intrinsic value of $4.65 per share. Compared to its current trading price, the model suggests South32 is trading at a 31.6% discount. This means the stock is potentially undervalued by almost a third according to this method.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for South32.

Our Discounted Cash Flow (DCF) analysis suggests South32 is undervalued by 31.6%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: South32 Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is a widely used valuation tool for profitable companies like South32, as it directly compares the company’s share price to its earnings performance. This makes it especially relevant in scenarios where a company is generating steady profits, providing a straightforward way to gauge whether the current share price is justified by its earnings potential.

Growth prospects and risk play a big role in what qualifies as a "normal" or "fair" PE ratio. Companies with stronger earnings growth or lower risk tend to justify higher PE multiples, while slower growth or greater uncertainty often push for lower ratios. This context is key when judging whether a stock's valuation stands out for the right reasons.

South32’s current PE ratio is 29.7x. Compared to benchmarks, this sits notably higher than both the Metals and Mining industry average of 22.6x and the peer average of 23.4x. On the surface, this might suggest the stock is expensive relative to its immediate competition.

However, Simply Wall St's proprietary "Fair Ratio" takes this a step further. This metric considers not just peer and industry averages, but also deeper factors such as South32's earnings growth, profit margins, market cap, and risk profile. By tailoring the expected multiple using company-specific and sector data, the Fair Ratio (calculated at 28.8x for South32) provides a more insightful benchmark for true value.

Comparing the Fair Ratio of 28.8x to South32’s actual multiple of 29.7x, the difference is less than 0.10. This indicates that shares are trading at a price that matches the company’s risk and growth profile.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your South32 Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal story or perspective about a company that connects the business’s outlook (where you think revenue, margins, and profits are headed) to a concrete financial forecast and fair value. Rather than just relying on static ratios or consensus views, Narratives let you combine your own expectations, whether bullish or cautious, with key company numbers. This way, you can see if a stock like South32 looks attractive or overvalued by your standards.

Simply Wall St makes Narratives accessible to everyone right from the Community page, where millions of investors create and update their own views. Narratives empower you to decide when to buy or sell by showing how your Fair Value estimate compares to today’s Price. Best of all, Narratives stay current because they automatically update as new results, news, or forecasts roll in, meaning your decision-making adapts as the facts on the ground change.

For example, some South32 investors are convinced that copper project expansions and rising margins justify a fair value around $3.93. Others, more concerned about market risks and energy costs, see $2.59 as appropriate. This highlights how your Narrative shapes your valuation and investment action.

Do you think there's more to the story for South32? Create your own Narrative to let the Community know!

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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