First your PE ratio calculation estimation is clearly wrong. Analysts predict Lynas's EPS to be around 0.191 ish (CBA, Morningstar etc). My own calculations (ie add Q1 to Q4 and adjust for tax_ show Lynas to have an EPS of around 0.194. PE = Price / EPS. Even if Lynas went to $8, Lynas will have an PE ratio of 41.88 (if using 0.191). Using my estimation of 0.194 u get a PE ratio of 41.2. Currently Lynas's price is $6.33, which translates to a PE ratio of 32.6.
Bluechip stocks tend to have a PE ratio below 20. Take BHP (EPS = 3.077). At its height of $54, BHP's PE was 54.06/(44.34/14.41) = 17.56.
Explain ORE and GXY / lithium stocks? They have NEGATIVE profit, yet they dropped a measly 10%? EPS and PE ratios are sometimes not useful in predicting stock movements. Tesla? Ring any bells? An PE of 1000 during its height?
This week's commodity correction clearly was miscalculated by analysts and retail investors. Iron Ore might be dead due to Brazil restarting supply, and China cutting demand due to COVID and wanting more sustainable development.
On the other hand, Lynas is NOT IRON ORE! The irony is China Northern Rare Earth INCREASED during the correction (a PE of 107). Clearly because iron ore suffered, analysts mis-sold and sold the entire sector (ie all commodities like REOs, lithium etc etc).
I can only speculate, but during Sat/Sun, analysts will wake back up and reanalyse what they have done. If they are still interested in commodities, it's clear theyll shift into green commodities (REOs, lithium etc).
To re-iterate:
- Nd Tariff
- A new friendly Malaysia government.
- Lynas having dramatic new profit heights
- Lynas getting US DOD approval
- US $3.5T Green New Deal
- US Nd subsidy for domestic magnet production
- COP26
- G20 will be on climate change
- China's environmental regulation on REOs will be released possibly aftr Nd Tariff
- China wanting to curb environmentally damaging mining production
- Afghanistan having a 5Y ban of doing business with anyone
- Biden's 50% EV mandate
- Start of the $1T infrastructure bill
- People scared of the UN Report on Climate Change
- Wildfires, floods, etc
On the other hand I can only see negatives for Iron Ore:
- Brazil will restart production (dam broke + covid caused a 4 year hiatus)
- China in lockdown decreasing construction (steel minus 50%)
- China wanting 3 pillars of environmental sustainability, equality and data protection (ie less focus on economic growth)
- Africa starting production
Clearly if I was an institution, I would buy Lynas and green stocks and not traditional commodities. It's clear this shakeup was a wakeup call for people to move into green commodities.
(20min delay)