The FTSE 250 stock I’m looking at today has almost doubled in price over the last three months.
Sadly, I missed out on this incredible gain. But as a potential investor, I’m interested to understand whether this strong momentum could continue. Should I consider this stock for my portfolio?
A year of progress
I think Ukrainian iron ore pellet producer Ferrexpo (LSE: FXPO) is best described as a risky investment. The company’s operations have been disrupted by the war with Russia. Among the problems it’s faced are higher costs, power shortages and lower iron ore prices.
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However, 2024 was a year of major progress. Production rose by 66% to 6.89m tonnes and access to Black Sea ports improved for exports. Ferrexpo loaded 37 ships last year, up from just 19 in 2023.
The company is expected to report a 44% increase in revenue to $941m for 2024, together with a net profit of $43m. After two years of losses, it’s good to see the business returning to profit.
The company’s improved financial performance was reported with its half-year result in October, just ahead of Donald Trump’s win in the US presidential election. Since then, Ferrexpo’s share price has taken off, doubling in three months.
There seems to be a strong feeling in the market that the Trump presidency has increased the likelihood of a settlement between Ukraine and Russia. That would be likely to benefit Ferrexpo.
Are the shares still cheap?
Despite recent gains, the share price is still around 60% below the levels seen prior to the Russian invasion in February 2022.
One way to interpret this is that it reflects Ferrexpo’s production, which is running at around half pre-war levels of 11m tonnes per year. The main reason for this is that the company has only been able to run one or two of its four pelletising production lines over the last year.
If Ferrexpo could return to full operating capacity, production could potentially double. Revenue and profits would be significantly higher.
More normal operating conditions could see a return to the high profit margins and generous dividends that were the norm prior to the war. In my view, an outcome like this could make the shares look cheap at current levels.
However, Ukraine’s infrastructure has been badly damaged and there’s no way to know if or when the war will end. It’s not clear how easily Ferrexpo would be able to return to pre-war levels of production quickly.
Iron ore prices may also have further to fall.
My approach is to look at Ferrexpo as things stand today. And on that view, the shares don’t look cheap to me.
Broker forecasts for 2025 suggest earnings could fall to around three cents per share this year, due to lower iron ore prices. That puts the stock on a lofty price-to-earnings ratio (P/E) of 46. At this level, Ferrexpo shares are too expensive for me to consider buying.
