Methanex (TSX:MX): Assessing Valuation After a 27% Share Price Drop and Growing Earnings

Methanex (TSX:MX) has quietly slipped about 27% this year, even as revenue and net income continue to grow. That disconnect has value oriented investors revisiting the stock’s fundamentals and long term demand story.

See our latest analysis for Methanex.

Despite that year to date share price return of around negative 27 percent, the stock has shown flickers of momentum recently, with a positive 7 day share price return and a modestly positive three year total shareholder return suggesting sentiment may be stabilising.

If Methanex’s recent volatility has you reassessing your watchlist, this could be a good moment to discover fast growing stocks with high insider ownership that might offer a different blend of growth and conviction.

With earnings still growing and intrinsic value estimates sitting well above the current CA$52 share price, is Methanex an overlooked value story in a cyclic sector, or are markets already pricing in its next leg of growth?

Price-to-Earnings of 13.5x: Is it justified?

On a price-to-earnings basis, Methanex trades at 13.5 times earnings, which looks inexpensive relative to both its own fundamentals and sector benchmarks.

The price-to-earnings ratio compares what investors pay today for each dollar of current earnings, a particularly relevant lens for a mature, profitable chemicals producer like Methanex. With earnings forecast to grow around the high single digits annually, a modest multiple suggests the market is not paying a premium for that growth profile.

Against peers, the discount stands out. Methanex trades below the North American Chemicals industry average of 22.5 times earnings and also below the peer average of 18.9 times earnings. Our SWS fair price-to-earnings ratio is higher at 16.3 times. That combination indicates a market valuation that could move closer to the fair ratio if earnings delivery and methanol demand remain supportive.

Explore the SWS fair ratio for Methanex

Result: Price-to-Earnings of 13.5x (UNDERVALUED)

However, cyclic methanol demand, pricing pressure, or project execution missteps could quickly erode earnings momentum and challenge the case for a valuation re rating.

Find out about the key risks to this Methanex narrative.

Another View: DCF Backs Up the Value Case

Our DCF model paints an even starker picture, with fair value around CA$103.25, almost double the current CA$52.09 price. That points to deep undervaluation, but also raises a question: is the market wrongly discounting methanol cyclicality, or spotting risks the model underplays?

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 Methanex 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 915 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 Methanex Narrative

If this perspective does not quite align with your own, you can dive into the numbers yourself and shape a fresh view in minutes, Do it your way.

A great starting point for your Methanex research is our analysis highlighting 4 key rewards and 2 important warning signs that could impact your investment decision.

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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.