VALE SA (VALE) has been one of the most searched stocks on Zacks.com recently, so it is advisable to look at a few facts that could drive this stock's performance in the near term.
Over the past month, this company's shares have returned -2.5% compared to a +0.3% change for the Zacks S&P 500 Composite Index. During that same period, the Zacks Mining – Steel industry, which VALE belongs to, has lost 4.5%. The big question here is, what is the direction of this stock going forward?
Media announcements or rumors of significant changes in a company's business outlook will usually make the stock “trend” and cause immediate price movements, but there are always some fundamental facts that ultimately drive the buy-and-hold decision.
Earnings forecast revision
At Zacks, we prioritize evaluating the changes in a company's earnings estimates over other factors because we believe the fair value of a stock is determined by the present value of its future earnings stream.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings forecasts in light of the latest business trends. When a company's earnings forecast goes up, the fair value of its stock also goes up. And if a stock's fair value is higher than its current market price, investors are more inclined to buy the stock, resulting in an increase in its share price. For this reason, empirical research shows a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
VALE is projected to post earnings of $0.54 per share for the current quarter, which would represent a -18.2% change from the year-ago period. Within the past 30 days, the Zacks Consensus Estimate has changed -16.4%.
The consensus earnings estimate for the current fiscal year is $2.13, indicating a change of +16.4% year over year. This estimate has changed -2.2% over the past 30 days.
Looking at the next fiscal year, the consensus earnings estimate is $2.14, which represents a +0.5% change from what VALE was expected to report a year ago. Over the past month, estimates have changed -1.4%.
The Zacks Rank, our proprietary stock rating tool that has an impressive outside-audited track record, effectively harnesses the power of earnings estimate revisions and is a more reliable indicator of near-term stock price movements. The magnitude of the recent change in the consensus estimate, along with three other factors related to earnings expectations, has earned VALE a Zacks Rank of #3 (Hold).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Revenue Growth Forecast
A company's earnings growth is arguably the best indicator of a company's financial health, but nothing happens if the company can't grow earnings. It's nearly impossible for a company to grow its earnings without growing its revenue over the long term. Therefore, knowing a company's earnings growth potential is very important.
For VALE, the consensus revenue estimate for the current quarter is $11.06 billion, indicating a change of +4.1% year-over-year, while estimates for the current and next fiscal years are $40.88 billion and $42.67 billion, indicating changes of -2.2% and +4.4%, respectively.
Last reported results and surprise history
VALE reported revenues of $9.92 billion for the most recent quarter, up 2.6% from the same period last year. EPS for the same period was $0.43, up from $0.20 in the same period last year.
Compared to the Zacks Consensus Estimate of $9.97 billion, reported revenues represented a surprise of -0.46%. EPS surprise was +13.16%.
Over the last four quarters, VALE has surpassed consensus EPS estimates two times, and the company has surpassed consensus revenue estimates three times during that period.
evaluation
No investment decision can be efficient without taking into account stock valuation. To predict the future price movement of a stock, it is important to determine whether the current price properly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S), Price to Cash Flow (P/CF) with its historical values helps in identifying whether the stock is fairly valued, overvalued or undervalued. Also, comparing a company with its peers based on these parameters gives a good idea of how reasonably priced its stock is.
The Zacks Value Style Score (part of the Zacks Style Scores system) pays close attention to both traditional and non-traditional valuation criteria to rate stocks from A to F (with An being better than B, B being better than C, etc.), which can be very helpful in identifying whether stocks are overvalued, fairly valued or temporarily undervalued.
VALE is rated an A in this regard, indicating that it is trading at a discount relative to its industry peers. To see the values of the valuation metrics that drove this rating, click here.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz surrounding VALE is worth following, however, its Zacks Rank #3 suggests that VALE is likely to perform in line with the overall market in the near future.
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