What does Fortescue do?
Fortescue Metals [ASX:FMG] is a pure iron ore miner. It has mines in the Pilbara in Western Australia, and sells the majority of its production to China.
What’s happening to FMG’s share price?
In short, it keeps going up!
Iron ore prices just breached the US$100/tonne level. As a pure iron ore producer, this is great news for FMG. The company also carries a lot of debt, which means it’s highly leveraged to iron ore price moves. Not so good when iron ore is on the way down, but great when prices are rising, as they are now.
What now for Fortescue Metals Group?
With iron ore at US$100/tonne, FMG is making good money. FY2017 profit will show a big jump on 2016.
The share price has already factored this in. As you can see in the chart below, over the past 12 months, FMG has rallied from around $1.70 to $6.85 (today’s price). That’s a 300% gain!
That means a lot of the good news has already been priced in. If you think that iron ore priced at US$100/tonne is here to stay, then FMG is still reasonable value, despite the share price surge.
But if you believe that prices have gone too far, and too fast, then you might be buying close to the peak here.
Having said that, it’s too early to call a top for FMG. Before becoming bearish, you really need to see the share price starting to make new lows. Specifically, a fall below $5.75 would suggest FMG’s epic run has finally come to an end. It would tell you the trend is in the process of turning down again.
But we’re not there yet. While I wouldn’t be a buyer here, if you own FMG, it’s worth holding on to the stock to see how this bull run unfolds.
Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.
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Editor, Money Morning