Mining and energy giant BHP Billiton’s (LSE: BLT) rocky ride over the past few years has shown no signs of letting up in 2016.

A backcloth of eroding commodity prices has seen the stock concede 45% of its value in the past four months alone, and further heavy weakness since 1 January has forced BHP Billiton to levels not visited for more than a decade.

But despite the shocking share price performance of recent years, I believe that BHP Billiton can still be considered far too expensive.

Shares ready to re-rate?

A steady decline in metal and energy values has seen earnings at BHP Billiton fluctuate wildly during the past five years, culminating in a hefty 52% earnings decline in the 12 months to June 2015.

The resources colossus has undertaken vast capex-cutting and cost-saving initiatives to mitigate a collapsing top line, including the massive $8.7bn demerger of South32 last year. Indeed, the business slashed controllable costs by an impressive $2.7bn last year and it remains on course to slash expenses still further in the current year.

But these measures are unlikely to stop earnings haemorrhaging further, according to City analysts. A 59% decline is currently pencilled-in for fiscal 2016, leaving BHP Billiton dealing on an enormous P/E rating of 24 times.

I would consider a reading closer to the value benchmark of 10 times — territory often associated with high-risk stocks — to be a fairer reflection of the enormous long-term troubles facing the company.

A subsequent re-rating would leave BHP Billiton dealing at just 338p per share, representing a whopping 50% discount from current levels.

Commodities under the cosh

And I believe the worsening newsflow surrounding the commodities sector certainly provides enough fuel to send BHP Billiton sinking to these levels in the near future.

The International Energy Agency this week labelled crude’s recent recovery from multi-year lows as a “false dawn“, adding that “it is very hard to see how oil prices can rise significantly in the short term” thanks to surging output and slack demand. The IEA now expects crude consumption to slump to 1.2m barrels per day in 2016 from 1.6m last year.

And the situation is also precarious in BHP’s other critical markets too. For example, China this month announced plans to shutter up to 150m more tonnes of steelmaking capacity over the next five years, another worrying sign for future iron ore and metallurgical coal demand.

A dicey dividend pick

Still, many investors would argue that BHP Billiton’s gigantic dividend prospects more than make up for the value shortfall in the earnings stakes.

The number crunchers are becoming increasingly receptive to the idea that the mining giant will put paid to its progressive dividend policy in the current year, a predicted reward of 110 US cents per share representing a vast downgrade from 124 cents in 2015.

Although BHP Billiton still sports a gigantic 9.8% yield, I reckon investors should be concerned that the projected dividend dwarfs anticipated earnings of 77 cents per share. And the company’s balance sheet is hardly in rude health to service such a sizeable reward either, as debt levels head steadily through the roof.

In light of these troubles, I believe investors with low risk thresholds should give BHP Billiton an extremely wide berth.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.