The Ferrexpo share price is tanking. Is this FTSE 250 on sale?

The Ferrexpo share price fell 20% this month, despite impressive earnings. Is it time to buy? Zaven Boyrazian investigates the FTSE 250 stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Stack of British pound coins falling on list of share prices

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Ferrexpo (LSE:FXPO) share price has had a rough month, so far, falling by around 20%. This recent decline follows what was an excellent growth period for the FTSE 250 stock. After all, over the last 12-months, even with the most recent drop, Ferrexpo saw its share price climb by over 120%.

So, the question is, what caused this upward momentum to reverse? And should I see it as a buying opportunity for my portfolio or a sign of trouble ahead? Let’s take a look.

The crumbling Ferrexpo share price

I’ve covered this business before. But as a quick reminder, Ferrexpo is a leading supplier of high-grade iron ore pellets for the global steel industry. The firm extracts the ore using its collection of mining sites before processing them into usable pellets for sale.

At the start of August, management released its interim report. And despite what the Ferrexpo share price would indicate, these results were, in my opinion, extraordinary. Thanks to rising iron ore prices, Ferrexpo’s revenue shot up 74% over the last six months, compared to a year ago. This, in turn, translated into after-tax profits of $661m. That’s 165% higher than in 2020! So why did the FTSE 250 stock take a hit?

Like most commodity-based businesses, Ferrexpo is highly dependent on the underlying market price of its materials. Since the pandemic began, iron ore prices have been on the rise, due to supply chain disruptions. In fact, the metal’s value has increased so much that Ferrexpo achieved its recent stellar growth even though production fell by 1%.

With the vaccine rollout progressing worldwide and life moving back toward normality, iron ore prices have begun showing some weaknesses in the derivatives marketplace. Consequently, management said it expects performance throughout the rest of 2021 to be less impressive. Given that Ferrexpo’s share price has been driven predominantly by future growth expectations, I understand why selling pressure has risen this month.

So, what’s next for this FTSE 250 stock?

While falling commodity prices aren’t a pleasant sight, it’s far from a catastrophe. Ferrexpo hasn’t been sitting idly with its temporary sales surge. The firm is actively re-investing capital to increase capacity with upgrades to its pelletiser machines. This is why production fell in the first half of 2021, as these machines were taken offline while the work was carried out.

Today, three of the four production lines have been upgraded, with the last expected to be completed in the next quarter. Once finished, up to 1m tonnes of additional annual production capacity will be added. That’s roughly a 10% boost. And should help mitigate the impact of falling iron ore prices on the stock.

The Ferrexpo share price has its risks like all FTSE 250 stock

The bottom line

The last time I looked at this business, I mentioned that falling commodity prices could have a substantial impact. And looking at Ferrexpo’s share price this month, it seems I was spot on. However, I think investors may have overreacted slightly on the news.

Today, the company is trading at a price-to-sales ratio of 3. That looks exceptionally cheap to me, even with a potential drop in iron ore prices on the horizon. Therefore, I’m still tempted to add this business to my portfolio, despite the upcoming short-term volatility.

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »