Today we're going to take a closer look at large-cap Basic Materials company Freeport-McMoRan, whose shares are currently trading at $41.03. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
Freeport-McMoRan Inc. engages in the mining of mineral properties in North America, South America, and Indonesia. The company belongs to the Basic Materials sector, which has an average price to earnings (P/E) ratio of 10.03 and an average price to book (P/B) ratio of 2.08. In contrast, Freeport-McMoRan has a trailing 12 month P/E ratio of 17.2 and a P/B ratio of 3.8.
P/B ratios are calculated by dividing the company's market value by its equity's book value. Equity refers to all of the company's assets minus its liabilities. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.
When we divide Freeport-McMoRan's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -1.87. Since it's negative, the company actually has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.