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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.
