Can Recent Price Rally and Copper Optimism Signal a New Era for Rio Tinto in 2025?

Deciding what to do with your Rio Tinto Group shares? You are not alone. Investors around the world are weighing their options, and with good reason. The stock has been making some interesting moves lately. Over the past week, Rio Tinto climbed 5.1%, showing a burst of optimism that stands out even more against its steady 5.7% rise over the past month. While this momentum is eye-catching, it is the long-term performance that really paints the picture: over three years, the stock is up 19.2%, and over five years, it has delivered an impressive 55.3% return. Still, there are signs of volatility, with a modest gain of 1.4% year-to-date and a small decline of 3.4% over the past year, suggesting some short-term caution in the market.

A lot of the recent gains can be traced to shifting global demand for minerals and metals, alongside changing risk perceptions in the broader market. Investors appear to be betting that Rio Tinto’s exposure to key commodities could become even more valuable, especially as supply constraints and green energy initiatives shape industry outlooks.

But is Rio Tinto actually undervalued right now? The numbers suggest it might be. On a valuation scorecard, the company earns a 5 out of 6, signaling it passes nearly every major undervaluation check. To see what drives this score, let us break down the most common valuation approaches. There is a smarter way to understand what Rio Tinto is really worth beyond just the standard metrics.

Why Rio Tinto Group is lagging behind its peers

Approach 1: Rio Tinto Group Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s true value by forecasting future free cash flows and discounting them back to today’s value. This approach aims to show what the business is really worth if you had to buy the entire stream of its future cash earnings, starting with the latest available data.

For Rio Tinto Group, the current Free Cash Flow sits at $7.08 Billion. Analysts predict steady growth, projecting Free Cash Flow to reach $14.6 Billion by 2028. Looking further, extrapolations estimate Free Cash Flow could grow as high as $33.8 Billion by 2035. These rising cash flows reflect both analyst estimates for the next five years and longer-term projections using industry trends and internal company momentum.

Using a two-stage Free Cash Flow to Equity model, the DCF calculates an intrinsic value per share of $202.49. This is notably higher than the current share price, suggesting a 76.1% discount. In other words, Rio Tinto shares appear sharply undervalued based on what the company’s future earnings might be worth today.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Rio Tinto Group is undervalued by 76.1%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Rio Tinto Group Price vs Earnings

The Price-to-Earnings (PE) ratio is one of the most widely used valuation metrics for profitable companies like Rio Tinto Group. It offers a quick snapshot of how much investors are currently willing to pay for each pound of earnings, making it especially useful when the business has a track record of consistent profits.

Growth expectations and perceived risk both play a significant role in shaping what would be viewed as a “normal” PE ratio for any given company. Typically, companies with stronger growth prospects or lower perceived risk command higher PE multiples, while slower-growing or riskier companies tend to trade at lower multiples.

Currently, Rio Tinto Group trades at a PE ratio of 10.25x. This sits below the Metals and Mining industry average of 13.71x and is dramatically lower than the peer average of 36.53x. However, these traditional benchmarks can be simplistic, since they do not consider the unique combination of growth, profitability, size, and risks specific to each business.

This is where Simply Wall St’s “Fair Ratio” stands out. The Fair Ratio goes beyond broad averages and calculates a benchmark multiple based on specific factors such as Rio Tinto’s earnings growth, profit margins, market capitalization, and risk profile. For Rio Tinto Group, the Fair PE Ratio works out to 19.93x, nearly double its actual multiple. This means the current valuation makes the stock appear inexpensive by this measure.

Result: UNDERVALUED

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 Rio Tinto Group Narrative

Earlier, we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your story about a company, combining your personal view of its future revenue, earnings, margins, and fair value, rather than just relying on the numbers themselves. Narratives link what you believe is happening in the business to a financial forecast and then to an estimated fair value, turning abstract data into a real-life decision you can act on.

Narratives are easy to create and compare using the Community page on Simply Wall St, used by millions of investors worldwide. They help you decide when to buy or sell by putting your fair value side by side with the current share price, and they are updated automatically whenever new news or results come in. For example, some investors believe Rio Tinto will outperform due to its copper and lithium growth, valuing the stock at up to £66.68, while others are more cautious about commodity headwinds and assign a fair value as low as £41.00. Narratives make it easy to see these perspectives and help you invest smarter, with confidence.

Do you think there's more to the story for Rio Tinto Group? 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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