Yahoo Finance Why Intrepid Potash Is Trading at a Discount
Did Intrepid Potash's 4Q15 Earnings Beat Analysts' Estimates?
Valuation multiple
Potash prices are a key driver for Intrepid Potash (IPI), and the 2016 outlook for potash prices is still poor. Low potash prices will continue to have an effect on the company’s cash flows. Analysts have revised their estimates downward, as we covered in part 7 of this series. Now let’s look at how the company’s valuation has been affected. We’ll use an enterprise valuation multiple of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization).
IPI is trading at a discount for a reason
Following the 4Q15 earnings release, Intrepid Potash’s valuation multiple dropped to 3.8x from 4.2x and is close to its previous low of 3.7x from January 2016. The peers represented in the chart above include Mosaic (MOS), Agrium (AGU), Intrepid Potash (IPI), and PotashCorp (POT). Keep in mind that you can access these companies through the Market Vectors Agribusiness ETF (MOO), which invests 1.7% of its holdings in CF, 4.6% of its holdings in POT, 2.5% of its holdings in MOS, and 3.6% of its holdings in AGU.
Intrepid Potash’s valuation multiple of 3.7x is trading at a significant discount to its peers’ median of 7.3. The peers’ median has traded between 5x to 7.5x over the past six months. The recent change to “going concern” language has created doubts about the outlook for the company and explains why its stock is trading at a significant discount to its peers’ stocks.
In the final part of this series, we’ll look at how analysts have revised their target prices for the company and what they recommend for IPI over the next 12 months.
Browse this series on Market Realist:
