Antofagasta plc (LON:ANTO): Is Growth Priced In?

Antofagasta plc (LON:ANTO) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of £10.025 is based on unrealistic expectations. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

See our latest analysis for Antofagasta

What are the future expectations?

Analysts are predicting good growth prospects for Antofagasta over the next couple of years. The consensus forecast from 17 analysts is buoyant with earnings forecasted to rise significantly from today’s level of $0.499 to $0.891 over the next three years. This results in an annual growth rate of 14%, on average, which signals a market-beating outlook in the upcoming years.

Is ANTO’s share price justified by its earnings growth?

ANTO is trading at price-to-earnings (PE) ratio of 26.31x, which suggests that Antofagasta is overvalued based on current earnings compared to the Metals and Mining industry average of 10.59x , and overvalued compared to the GB market average ratio of 16.09x .

LSE:ANTO Price Estimation Relative to Market, April 16th 2019
LSE:ANTO Price Estimation Relative to Market, April 16th 2019

We understand ANTO seems to be overvalued based on its current earnings, compared to its industry peers. But, to properly examine the value of a high-growth stock such as Antofagasta, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 26.31x and expected year-on-year earnings growth of 14% give Antofagasta a higher PEG ratio of 1.88x. So, when we include the growth factor in our analysis, Antofagasta appears a bit overvalued , based on the fundamentals.

What this means for you:

ANTO’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Are ANTO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has ANTO been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of ANTO’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.