We've been asking ourselves recently if the market has placed a fair valuation on VALE. Let's dive into some of the fundamental values of this large-cap Basic Materials company to determine if there might be an opportunity here for value-minded investors.
Vale S.A., together with its subsidiaries, produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking in Brazil and internationally. 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, VALE has a trailing 12 month P/E ratio of 4.5 and a P/B ratio of 0.4.
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 VALE's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.49. 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.