Q1 earnings spark fresh interest in REX American Resources
REX American Resources (REX) reported first quarter results that drew attention, with net income of US$18.45 million and earnings per share of US$0.56, alongside sales of US$156.5 million.
See our latest analysis for REX American Resources.
REX American Resources’ recent earnings release comes after a strong run in the stock, with a 49.17% year to date share price return and a 123.75% 1 year total shareholder return, suggesting momentum has been building despite some shorter term pullbacks.
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With earnings per share at US$0.56 and the stock up 49.17% year to date, the key question is whether REX American Resources is still trading below its intrinsic value or if the market is already pricing in future growth.
Price-to-Earnings of 17.2x: Is it justified?
On earnings of US$0.56 per share in the latest quarter and a last close of $48.33, REX American Resources is trading on a P/E of 17.2x, slightly above its US Oil and Gas peers but a little below the broader US market.
The P/E ratio compares the share price to the company’s earnings per share, so it reflects how much investors are currently willing to pay for each dollar of profit. For a producer of ethanol and related by products, this measure is often used to gauge how the market is weighing current profitability against the risks and cyclicality of the sector.
REX is considered expensive relative to the US Oil and Gas industry average P/E of 13.1x, which suggests the stock is priced at a premium compared to many peers. At the same time, its P/E is below the wider US market average of 18.8x and roughly in line with the peer average of 17.9x, so the current earnings multiple points to expectations that are higher than the industry but not stretched compared to the market as a whole.
See what the numbers say about this price — find out in our valuation breakdown.
Result: Price-to-Earnings of 17.2x (ABOUT RIGHT)
However, you also need to weigh risks such as sector cyclicality in ethanol and its byproducts, and any future reset in expectations after very strong one-year returns.
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Another way to look at value
While the recent discussion focused on the P/E of 17.2x, the SWS DCF model comes to a different conclusion. With an estimated future cash flow value of $40.15 against the current price of $48.33, the stock screens as overvalued on this approach. Which picture do you think tells the truer story?
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 REX American Resources 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 46 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Sentiment on REX American Resources is mixed, with both risks and rewards in play, so it makes sense to review the data yourself and move quickly to shape your own view by weighing up the 2 key rewards and 1 important warning sign
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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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