Author: admin

Track your investments for FREE with Simply Wall St, the portfolio command center trusted by over 7 million individual investors worldwide.

ERAMET (ENXTPA:ERA) has recently drawn investor attention after a period where the share price showed mixed short term moves, followed by a strong gain over the past 3 months. This has prompted a closer look at fundamentals.

See our latest analysis for ERAMET.

At a share price of €68.05, ERAMET has seen a 28.4% 90 day share price return and a 23.6% 1 year total shareholder return, while the 3 year total shareholder return remains negative. This indicates that recent momentum looks stronger than the longer term picture.

If ERAMET’s recent move has you thinking about other materials names, you might like our screener of 28 best rare earth metal stocks as a starting point for further ideas.

With ERAMET trading at €68.05 and sitting above the average analyst price target, yet flagged with a large estimated intrinsic discount, you have to ask if the market is missing something or already pricing in better days ahead?

On the pricing side, ERAMET’s last close of €68.05 lines up with a P/S of 0.7x, which screens as inexpensive against both peers and the wider European metals and mining group.

The P/S ratio compares the company’s market value to its revenue, so a 0.7x multiple means investors are paying €0.70 for every €1 of annual sales. For a business generating €2,915.0m of revenue but currently reporting a net loss of €97.0m, using sales instead of earnings can be a practical way to benchmark valuation while profitability remains weak.

According to Simply Wall St’s checks, ERAMET looks good value on several fronts: its 0.7x P/S is in line with the peer average of 0.7x, sits below the European metals and mining industry average of 1.1x, and is also well below an estimated fair P/S of 3.8x that their model suggests the market could move towards if sentiment and fundamentals aligned.

Explore the SWS fair ratio for ERAMET

In addition, our DCF model currently estimates ERAMET’s future cash flow value at €413.52 per share, compared with the current €68.05 share price. The SWS DCF model projects future cash flows and discounts them back to today using an appropriate rate, which can sometimes result in very large intrinsic value gaps for companies where expectations for future cash generation differ from what the market is currently pricing.

For ERAMET, which is still loss making but has forecasts pointing to earnings growth and an expected return on equity of 5.8% in three years, a cash flow based approach puts more weight on the path back to profitability than on today’s income statement. That can lead to a very different view compared with simple multiples.

Look into how the SWS DCF model arrives at its fair value.

Result: Price-to-Sales ratio of 0.7x (UNDERVALUED)

However, ERAMET is still reporting a €97.0m loss and operates in cyclical manganese and nickel markets. Weaker pricing or project setbacks could quickly challenge this valuation gap.

Find out about the key risks to this ERAMET narrative.

While the 0.7x P/S suggests ERAMET looks inexpensive, our DCF model goes much further, putting future cash flow value at €413.52 per share versus today’s €68.05 price. That is a very large gap, so you have to ask whether the cash flow assumptions or the market are off the mark.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out ERAMET for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 237 high quality undervalued stocks. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

If you look at the numbers and reach a different conclusion, or simply prefer to test your own view against the data, you can build a personalised thesis in just a few minutes, starting with Do it your way.

A great starting point for your ERAMET research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

If you want to stress test your view on ERAMET and keep your watchlist fresh, use the screeners below to spot opportunities you might otherwise miss.

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.

Companies discussed in this article include ERA.PA.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com