Potash (POT) has struggled this year, especially relative to the rest of the market, and is trading just off its 52 week lows. However, that may be creating a long term opportunity in the stock. The long term fundamentals of fertilizer are still intact as the demand of food will continue to rise with global population growth. Management has stated its confidence in the company despite short term challenges.
In its Q4 release, management said that POT's Q4 results were pressured by the "the drag of global economic concerns… caused a greater decline in fourth-quarter demand than we had anticipated." POT further noted that the "the return on fertilizer investment continues to be attractive to farmers world-wide and is expected to result in greater demand in the quarters ahead." The valuations are very attractive as all of the valuation metrics suggest that the stock is undervalued. I take a closer look at the valuation metrics below.
Valuation: Potash's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Potash's current P/B ratio is 5.1 and it has averaged 5.9 over the past 5 years with a high of 10.8 and low of 3.9. Potash's current P/S ratio is 4.9 and it has averaged 5.9 over the past 5 years with a high of 9.9 and low of 2.3. Potash's current P/E ratio is 13.2 and it has averaged 23.6 over the past 5 years with a high of 42.2 and low of 6.6.
Price Target: The consensus price target for the analysts who follow Potash is $56. That is upside of 21% from today's stock price of $46.37 and suggests that the stock is has some room to run from these levels.
Forward Valuation: Potash is currently trading at about $46 a share with analysts expecting EPS of $3.89 next year, an earnings increase of 6% y/y, for a forward P/E ratio of 11.9. Taking a look at other ag stocks will give us a better idea of the stock's relative valuation. Mosaic (MOS) is currently trading at about $57 a share with analysts expecting EPS of $5.17 next year, an earnings increase of 11% y/y, for a forward P/E ratio of 11.1.
Agrium (AGU) is currently trading at about $88 a share with analysts expecting EPS of $9 next year, an earnings decline of -1% y/y, for a forward P/E ratio of 9.8. Monsanto (MON) is currently trading at about $79 a share with analysts expecting EPS of $4.07 next year, an earnings increase of 16% y/y, for a forward P/E ratio of 19.4. The mean forward P/E of Potash's competitors is 13.4 which suggests that Potash is undervalued relative to its publically traded competitors.
Earnings Estimates: Potash has beat EPS estimates 2 times in the past 4 quarters. The company's EPS figures have come in between -10 cents and 10 cents from consensus estimates or about -11.4% to 11.6% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Price Action: Potash is down 15.1% over the past year, underperforming the S&P 500, which is up 10.7%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $45.45 and below its 200 day moving average, which sits at $49.01.