It hasn't been a great afternoon session for Rio Tinto investors, who have watched their shares sink by -1.2% to a price of $62.89. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
The Market May Be Undervaluing Rio Tinto's Assets and Equity:
Rio Tinto Group engages in exploring, mining, and processing mineral resources worldwide. The company belongs to the Basic Materials sector, which has an average price to earnings (P/E) ratio of 23.66 and an average price to book (P/B) ratio of 2.69. In contrast, Rio Tinto has a trailing 12 month P/E ratio of 9.6 and a P/B ratio of 1.85.
Rio Tinto's PEG ratio is 6.65, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
An Excellent Current Ratio but a Declining EPS Growth Trend:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $40,522 | $43,165 | $44,611 | $63,495 | $55,554 | $54,041 |
| Operating Margins | 44% | 27% | 38% | 47% | 36% | 27% |
| Net Margins | 34% | 16% | 23% | 36% | 23% | 18% |
| Net Income (M) | $13,925 | $6,972 | $10,400 | $22,597 | $13,048 | $9,953 |
| Net Interest Expense (M) | -$33 | -$648 | -$1,751 | -$26 | -$1,846 | -$1,713 |
| Depreciation & Amort. (M) | $4,015 | $4,384 | $4,279 | $4,697 | $470 | $484 |
| Diluted Shares (M) | 1,659 | 1,659 | 1,256 | 1,256 | 1,256 | 1,256 |
| Earnings Per Share | $7.88 | $4.88 | $6.0 | $12.96 | $7.6 | $6.16 |
| EPS Growth | n/a | -38.07% | 22.95% | 116.0% | -41.36% | -18.95% |
| Avg. Price | $35.21 | $40.26 | $44.97 | $65.16 | $66.34 | $62.99 |
| P/E Ratio | 4.44 | 8.2 | 7.45 | 4.99 | 8.67 | 10.16 |
| Free Cash Flow (M) | $11,821 | $14,912 | $15,875 | $25,345 | $16,134 | $15,160 |
| EV / EBITDA | 2.77 | 4.53 | 2.81 | 2.36 | 4.25 | 5.33 |
| Total Debt (M) | $12,440 | $13,093 | $13,247 | $12,395 | $10,148 | $12,177 |
| Net Debt / EBITDA | 0.08 | 0.32 | 0.14 | -0.01 | 0.17 | 0.16 |
| Current Ratio | 1.91 | 1.56 | 1.8 | 1.93 | 1.64 | 2.06 |
Rio Tinto has an excellent current ratio of 2.06, generally positive cash flows, and healthy leverage levels. However, the firm has declining EPS growth. Finally, we note that Rio Tinto has decent operating margins with a negative growth trend.
