Anglo American (LSE: AAL) has seen its share price double over the past year. I reckon this makes it among the best performing FTSE 100 shares for this time period. But will the multi-commodity miner slow down? I doubt that.
I think, at worst, its share price could dip for brief periods as another round of stock rotation happens. Its price-to-earnings (P/E) ratio was already somewhat high at 27 times before the results were released, which further indicates that some decline is possible.
Incredible profit increase
But going by its strong results, I think it is only a matter of time before the Anglo American share price can start inching up again. Its revenues are up 119% for the half year ending 30 June 2021 and its net profit is up an incredible 1,001%. Of course, the numbers look exaggeratedly big because they are being compared with last year, when there was a dip in the company’s performance.
But even if I compare the numbers to 2019, they still look pretty damn impressive. Revenue is up over 47% from the first half of 2019 and net profit is up a whole 175%. This increase too, can be attributed to a big stroke of luck for miners. Commodity prices have been on fire in the past year, supported by government stimulus. But not all miners have been able to benefit equally.
What is Anglo American doing right?
This suggests that Anglo American is doing something right, further building my confidence in the stock. It helps that some of its biggest income generators like the platinum group metals, copper, and iron ore saw elevated prices during this time.
But also, that their production was not compromised because of unexpected factors like poor weather, for instance. Its platinum metals production grew, as an example, by 28% compared to last year. Diamond prices rose as well. But in this case too, the company reports a rise in consumer demand in the post-pandemic period.
Share buyback can raise the Anglo American price
The Anglo American share price can also rise because of its stock buyback, which can push up its price in the short term. As per a Financial Times report, CEO Mark Cutifani said that the “The share buyback should tell you that we don’t think this is as good as it gets.” To me this suggests that the share price can indeed rise further.
Risks and assessment
At the same time, it is essential to bear in mind that the Anglo American performance is vulnerable to government actions. And if public spending is to slow down or be redirected in a manner that does not suit industrial metal miners, it may not see such good times ahead. In any case, as a cyclical stock it is tied to ups and downs in business conditions. If growth is slow, its performance can dip.
These risks may not bear out though. I am more optimistic than not about Anglo American for now. It is a buy for me.
Manika Premsingh 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.