The Fortescue Ltd (ASX: FMG) share price has dropped an astonishing 25% in less three months, which presents an interesting buying opportunity for brave investors.
Fortescue is one of the largest iron ore miners in Australia and the world.
Is this a good time to buy?
As an ASX mining share, the iron ore price plays a big role in how much profit the business can make.
FY26 saw Fortescue’s realised price for hematite (iron ore) increase by 7% to US$90.7 per dry metric tonne (dmt), which helped underlying net profit increase 3% to US$3.47 billion.
The reason why earnings didn’t increase at least as fast as the commodity price is because production costs increased by 4% to US$18.74 per wet metric tonne (wmt).
The problem for Fortescue is that the iron ore price is noticeably lower now that it was during FY26, which could mean a sizeable hit to earnings in FY27.
According to Trading Economics, the iron ore price has dropped 7.25% over the last 12 months. With how production costs don’t typically go down (much), that decline in iron ore price will probably translate into a sizeable fall of revenue and earnings.
But, if we’re going to invest in a cyclical industry like mining, then it’s normally better to buy when prices are low rather than when prices are high. We’re getting closer to bargain prices with the iron ore miner, but I wouldn’t say we’re there yet.
If the iron ore price falls to around US$90 per tonne – it’s currently at US$97 per tonne – then it could be a more appealing time to invest.
It seems counter-intuitive to invest when there’s weakness, but that’s what effective contrarian investing can look like.
Fortescue share price valuation
Using the forecast on Commsec, Fortescue shares are now valued at under 13x FY27’s projected profit with a possible dividend yield of 7.2%, with the franking credits included.
It’s looking cheaper, but I wouldn’t call it amazing value yet. I’d buy other ASX dividend shares instead.
