Is There Still Time To Buy BHP Billiton plc?

Can BHP Billiton plc (LON: BLT) move higher, or are the company’s shares overvalued?

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Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.

Today I’m looking at BHP Billiton (LSE: BLT) (NYSE: BHP.US) to ascertain if its share price has the potential to push higher. 

Current market sentiment

The best place to start assessing whether or not BHP’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.

At present, the market has mixed feelings towards BHP. Indeed, on one hand investors are concerned about the commodity giant’s exposure to iron ore, the price of which has been sliding in recent weeks as Chinese economic data deteriorates.

BHP BillitonAnd on the other hand, investors appear to be excited about BHP’s recent plan to spin off around $20bn worth of non-core, low margin assets, as part of the company’s plan to return to growth.

What’s more, as BHP slashes capital spending and pays down debt, many City analysts and even the company’s management, has stated that large multi-billion dollar cash returns to investors could be on the cards in the near future.

Upcoming catalysts

There are plenty of upcoming catalysts that are likely to drive BHP’s share price higher in the near future. For example, the company continues to develop shale oil fields within the US and these developments are expected to add billions to the company’s bottom line when they come onstream during the next few years.

In addition, as covered above, investors are eagerly awaiting news relating to the company’s proposed split of operations and the possibility of and larger dividend payout, or share buyback.

Nevertheless, BHP’s fortunes remain heavily reliant upon Chinese economic growth and Chinese economic data is a major catalyst for BHP’s share price. Luckily, as Chinese economic growth begins to slow, policy makers within Beijing are rumoured to be working on further economic stimulus plans for the country. These plans are likely to include additional infrastructure spending — good news for BHP. 


Unfortunately, investors remain cautious about BHP’s future as the company’s fortunes are dependent upon the global economic recovery, which is yet to be confirmed. Still, as the world largest diversified miner BHP trades at a premium valuation in comparison to the company’s smaller peers.

In particular, BHP currently trades at a forward P/E ratio of 11.6, while the company’s peers in the wider mining sector trade at an average P/E of 8.5. This premium seems appropriate.

That said, according to City estimates BHP’s earnings are expected to bounce 24% higher this year, implying that the company’s shares are cheap, based on future growth.  

Foolish summary

So overall, based on the company’s rate of growth I feel that there is still time to buy BHP.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert does not own any share mentioned within this article. 

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