Glencore has delivered a strong 103.7% total return over the past 5 years, which leaves a clear question for you as an investor today. Is the current share price still grounded in the cash the business can generate, or has sentiment moved ahead of those cash flows?
The 103.7% 5 year gain puts real weight on whether Glencore’s recent share price now fully reflects the cash the business is expected to produce.
Glencore’s mix of trading operations and mining assets can have a direct effect on how consistently profits turn into free cash flow and on how much capital the group needs to reinvest to sustain that performance.
What if you looked at Glencore through its earnings instead? See why Glencore’s 16.1x P/E tells a different valuation story.
The issue now is whether Glencore’s current market value is adequately supported by its projected cash flows when viewed through a Discounted Cash Flow (DCF) lens.
If you want a wider watchlist alongside Glencore while still focusing on valuation and cash generation, a focused stock screen built around 9 high quality undervalued stocks can be a useful next step.
Has Glencore Run Too Far on Cash Flow?
The Discounted Cash Flow (DCF) model here is built around the cash Glencore can return to shareholders over time. Over the latest twelve months the group reported free cash outflow of about US$1.55b, so the model leans heavily on expectations that future cash generation improves from that point.
Analyst projections used in this 2 Stage Free Cash Flow to Equity model assume Glencore moves back to multi billion dollar annual free cash flows, which then level out rather than compound aggressively. On those assumptions, the DCF output suggests the estimated intrinsic value sits substantially below the current £5.61 share price, which points to the market paying up for the stock relative to the cash flows currently embedded in the model. Find out what Glencore could be worth using our Discounted Cash Flow (DCF) estimate.
The Glencore Narrative: What Would Justify Today’s Price?
Glencore’s Simply Wall St Narratives pick up where the DCF puzzle leaves off and spell out which paths for future growth, margins and earnings would need to play out for the stock to be worth materially more or less than it is today on the market. Rather than giving a single output from a ratio or valuation model, they map the set of underlying assumptions so you can track over time whether Glencore’s actual progress aligns with the scenario you are relying on.
Glencore inspires two very different valuation stories right now, with one camp focused on copper leverage and cost cuts and the other fixated on execution and political risk.
Bull case: 27% undervalued
“Roughly 1 billion dollars of recurring annualised cost savings, heavily weighted to core copper, coal and zinc nickel assets, is expected to more than offset inflation…”
Discover why this Narrative puts Glencore at 27% undervalued.
Bear case: 15% overvalued
“Heavy reliance on copper expansion projects such as Antapaccay extensions, DRC growth and North American developments means any permitting delays, partner issues or community opposition could leave Glencore with a higher capital base and less copper output than planned…”
Explore why this Narrative puts Glencore at 15% overvalued.
One more Glencore check that belongs alongside the cash flow story
The people directing Glencore and how their rewards line up with your interests can matter as much as any DCF output, so it is worth seeing how that leadership scorecard looks. See who runs Glencore and how they are paid.
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.
Companies discussed in this article include GLEN.L.
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