Assessing Ero Copper (TSX:ERO) Valuation After Recent Share Price Volatility

Why Ero Copper Is Back On Investors’ Radar

Ero Copper (TSX:ERO) has quietly put up a mix of positive and negative short term returns, including a 5.2% decline over the past day and a 2.9% gain over the past week.

For longer term holders, the stock shows an 18.5% return over the past month and 26.3% over the past 3 months, with year to date and 1 year total returns also in positive territory.

See our latest analysis for Ero Copper.

The recent 5.2% 1 day share price decline to $39.98 comes after a period of solid momentum, with a 94.1% 1 year total shareholder return pointing to growing interest in Ero Copper’s Brazil focused copper, gold and silver operations.

If this kind of move has caught your attention, it could be a good moment to broaden your watchlist and check out fast growing stocks with high insider ownership for other fast moving ideas.

With Ero Copper trading at CA$39.98, a small premium to the average analyst price target of CA$37.97 but showing an estimated 41.6% intrinsic discount, you have to ask: is there real value here, or is the market already pricing in future growth?

Most Popular Narrative: 6.8% Overvalued

With Ero Copper last closing at CA$39.98 against a narrative fair value of about CA$37.43, the current price sits slightly above that storyline.

The fair value estimate has risen slightly to approximately CA$37.43 per share from CA$35.80, reflecting higher long term growth and margin assumptions along with the gold windfall.

The future P/E has risen slightly to about 9.4x from 9.0x, indicating a small expansion in the implied earnings multiple that is consistent with a stronger growth and return profile.

Read the complete narrative.

Curious what kind of copper and gold price deck, margin profile, and future earnings multiple are baked into that fair value path? The full narrative spells it out.

Result: Fair Value of $37.43 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, it is worth remembering that repeated production guidance cuts, along with concentrated exposure to Brazilian policy and currency shifts, could quickly challenge that fair value story.

Find out about the key risks to this Ero Copper narrative.

Another View: DCF Points In The Opposite Direction

While the narrative fair value of about CA$37.43 suggests Ero Copper is 6.8% overvalued, our DCF model tells a different story. On that approach, the shares at CA$39.98 screen as trading 41.6% below an estimated fair value of CA$68.50. This raises a key question: is the market underestimating the cash flow potential, or is the DCF leaning too heavily on optimistic inputs?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Ero Copper for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 884 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Ero Copper Narrative

If you look at the numbers and reach a different conclusion, or simply prefer to test your own assumptions, you can build a customized view in just a few minutes, starting with Do it your way.

A great starting point for your Ero Copper research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

If Ero Copper has sparked your interest, do not stop here. Broaden your opportunity set with a few focused screens that surface very different types of ideas.

• Target income first by reviewing these 12 dividend stocks with yields > 3%, which may suit a portfolio built around regular cash returns.
• Chase growth potential in future facing themes by scanning these 26 AI penny stocks, which sit at the intersection of automation and data driven business models.
• Hunt for price gaps by checking these 884 undervalued stocks based on cash flows, which might be trading below what their cash flows suggest, before the wider market catches on.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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