In recent times, the BHP Group Ltd (ASX: BHP) has faced a downturn, with its share price declining by 15% in 2024. Amidst challenges such as a drop in iron ore prices and significant one-off expenses, investors are left wondering: Is now the time to consider investing in BHP shares?

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Factors Influencing BHP's Performance

The primary factor contributing to BHP's recent struggles is the declining price of iron ore. As a major player in the mining industry, BHP's fortunes are closely tied to the fluctuations in commodity prices. The decrease in iron ore prices has put pressure on the company's profitability.


Additionally, BHP has incurred significant one-off expenses in its FY24 first-half results. This includes a write-down of its nickel assets and increased costs related to the Samarco disaster in Brazil. These unexpected costs have further weighed on the company's financial performance.

Analyst Insights

Despite the challenges, there are signs that BHP might offer a buying opportunity. The Australian reports that broker Citi has upgraded its rating on BHP shares to a buy. While keeping its price target at $46, Citi believes BHP is currently undervalued.


Citi analyst Paul McTaggart argues that BHP seems attractively priced based on normalized valuation metrics. By comparing metrics like enterprise value to EBITDA and price to cash flow ratios to historical averages, McTaggart suggests BHP is trading at a discount compared to its historical valuation.


Additionally, when considering dividend companies on the ASX, BHP's potential value may become even more enticing, especially if it maintains its dividend payout amidst its current valuation.

Comparative Analysis

However, it's essential to note that BHP is not the only player in the iron ore market. According to McTaggart, while BHP may be undervalued, Rio Tinto Ltd (ASX: RIO) offers even greater value. With a more favorable outlook and stronger production growth prospects, Rio Tinto may present a more compelling investment opportunity.

Conclusion

In conclusion, the recent performance of BHP shares may present an opportunity for investors to consider adding the stock to their portfolios. Despite facing challenges such as falling commodity prices and one-off expenses, analysts believe that BHP is currently undervalued relative to its historical averages. However, investors should carefully consider the competitive landscape and alternative investment options before making any decisions.