3 reasons Fortescue Metals Group Limited is scraping the bottom

Shares have dropped 26.4% since February.

| More on:
a woman

You鈥檙e reading a free article with opinions that may differ from The Motley Fool鈥檚 Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Times are tough for Fortescue Metals Group Limited (ASX: FMG) shareholders. Not only are their shares hovering at an eight-month low of $4.58, but there are strong signs of them falling even further.

Here are three reasons why that could be the case:

1.聽Throughout 2013, iron ore was trading at an average price of roughly US$135 a tonne. It is now hovering at just above US$102 a tonne.

2.聽As if the 24% drop in iron ore price wasn鈥檛 enough, analysts are expecting it to drop as low as US$80 a tonne in 2015. While Fortescue will still remain profitable at that price, it will have a significant impact on the company鈥檚 overall earnings.

3.聽Fortescue Metals Group is a pure iron ore play, leaving it far more susceptible to volatility in the commodity鈥檚 price. Notice how its two larger, more diversified, iron ore miners haven鈥檛 fallen as heavily. Since the date Fortescue hit its $6.22 high (it has fallen 26.4% since), BHP Billiton Limited (ASX: BHP) has dropped just 4.3% and Rio Tinto Limited (ASX: RIO) has fallen 12.6%.

A much better bet than Fortescue

Fortescue is far too susceptible to movements in the price of iron ore, making it an unappealing investment in my mind.

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

More on 鈴革笍 Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
鈴革笍 Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
鈴革笍 Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more

asx investor daydreaming about US shares
鈴革笍 How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more

person reading news on mobile phone
鈴革笍 Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more