To say it’s been a tough year or so for Fresnillo (LSE: FRES) shares would be a bit of an understatement. It currently ranks as one of the worst-performing stocks on the FTSE 100.
Despite that, I want to see if there’s an opportunity to buy falling shares, and whether they could somehow turn things around. Let’s dig deeper.
Volatility hitting hard
Fresnillo’s share-price journey makes for bleak viewing but it would be remiss of me not to share it.
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As I write, the shares are trading for 529p. At this time last year, they were trading for 879p, which is a mammoth 39% drop over a 12-month period.
In case you’re wondering what’s happened, the mining giant operates and reports in its native currency, the Mexican peso. However, the issue is that its end product — primarily silver, gold, as well as lead, zinc and other commodities — is priced and sold in the US dollar. In simple terms, it is at the mercy of currency fluctuations.
Due to heightened volatility, including soaring inflation, rising interest rates and fears of a banking crash in the US, Fresnillo shares have taken a beating. It’s worth mentioning the company isn’t alone and other FTSE stocks have suffered similar, albeit not as severe, effects of currency fluctuations.
Contrarian buy or one to avoid?
Let’s switch it up and focus on some potential positives for Fresnillo and its beleaguered shares. It’s worth noting that commodities are often safe havens during times of economic volatility and demand for them can increase, especially gold. This could help boost performance as well as sentiment.
Another positive for Fresnillo is that the longer-term picture could be fruitful. So much so, that I reckon the shares could head upwards once market volatility cools, whenever that may be. Many of the commodities it mines are crucial for infrastructure as well as renewable energy and electric vehicles. These aspects could also help Fresnillo out too. When I see that the business is forecasting lofty earnings growth, it is obviously optimistic. However, I do understand forecasts don’t always come to fruition.
What is concerning for me is the fact that Fresnillo shares have slumped badly, but amazingly still look overvalued. Trading on a price-to-earnings ratio of 22, this is significantly higher than the FTSE 100 index average of 14.
On the other side of the coin, Fresnillo may be at the mercy of external factors, but it looks to have a decent balance sheet with little debt. High debt levels when interest rates are high can spell bad news as it is costlier to service debt.
My verdict
I’ve decided I wouldn’t buy Fresnillo shares for my holdings yet. I will keep a close eye on developments and will take an interest in future updates as well as potential wider economic events that could impact the business.
There may be other investors with a stronger stomach than me willing to consider putting their hard-earned cash into its shares. The fact it seems so exposed to external factors is putting me off. I reckon there are better FTSE stocks out there for me.
