Is Potash Corp. Overvalued?

Greg Sushinsky over at Investopedia had an article discussing the fundamentals of Potash.  I still think that POT [stckqut]POT[/stckqut] is a Good company and a good investment so I stand by my analysis of the numbers on February 15 but Greg has some interesting analysis that is worth reading.

Below is the first part of the article but you can click through here to read the entire opinion.

Potash Corp. (NYSE:POT) of Saskatchewan has seen its stock rise from a close of $104.49 per share to just over $115 per share last week. The fertilizer company's stock has traded between $63.65 and $126.47 per share in the last 52-weeks. But is the stock a good buy on fundamentals?

A Dust Bubble Scattered?
A quick review of the last couple of years in the agriculture business found a startling commodity bubble in fertilizer. Not so long ago - 2008 in fact - Potash Corp. earned $11 a share for its fiscal year, but earnings fell to $3.25 a share in fiscal 2009. Prices for potash fertilizer had run up from a relatively stable $100 per ton in 2003-2004 to its current price of approximately $580. Potash Corp.'s stock price reflected these changes, as it shot from under $30 a share to the low $200s during the boom.

The Stock's Fundamentals
The boom price in the $200s saw Potash Corp. trading at a PE of roughly 20. Now the multiple is about 35 times earnings, at over five times book value and an almost punitive dividend.

How about forward earnings? The company is calling for $4 to $5 earnings in 2010, less than the $6 analysts had expected. The forward multiple on this outlook would put the PE at 23 to 28.75, still pricey in a market where historical PEs have gone awry since the spate of negative earnings.

More important, this multiple exceeds the 20 PE multiple Potash Corp. carried at even its fullest earnings. So on the face of it, fundamental investors might want to simply say the stock is overvalued right now at its $115 market price. But things are not so simple.

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