How does the Fortescue share price compare to its peers?

The Fortescue Metals Group Limited (ASX: FMG) share price has surged higher in 2020 but will it continue to outperform its peers?

The Fortescue Metals Group Limited (ASX: FMG) share price has rocketed 38.15% higher in 2020 (at the time of writing). On paper, that's a significant outperformance compared to the S&P/ASX 200 Index (ASX: XJO), which has fallen 12.09% lower this year.

But how does the Fortescue share price stack up against its fellow Aussie iron ore miners?

Share investor with chess pieces deciding to buy or sell ASX shares

Image source: Getty Images

How does the relative value look?

The first thing about relative valuation is defining an appropriate peer group. According to the Australian Department of Industry, Fortescue is part of the 'Big 4' producers alongside BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO) and Brazil-based Vale.

That means BHP and Rio are probably decent comparisons for the Fortescue share price. I've whipped up a quick table of some key metrics to compare the Aussie iron ore miners right now.

  Fortescue BHP Rio Tinto
Market Capitalisation A$46.09 billion A$172.61 billion A$36.71 billion
Net Assets (Feb 2020) US$12.5 billion US$52.4 billion US$45.2 billion
YTD share price change +38.15% -7.56% -3.3%
P/E ratio 6.45 13.76 14.12
Dividend yield 6.68% p.a. 5.81% p.a. 5.75% p.a.

Data source: Google Finance, Table: Author's own

What separates Fortescue from its peers?

Based on the above table, it's easy to see that Fortescue has a couple of things going for it.

While BHP and Rio shares have slumped in 2020, the Fortescue share price is up 38.15% to $14.95 per share at the time of writing.

That's a remarkable recovery, given it was hammered 36.3% in the March bear market from its January 2020 all-time high.

One big factor was the Aussie iron ore miner's strong quarterly result in April. That announcement was highlighted by record third-quarter iron ore shipments of 42.3 million tonnes, up 10% year on year.

However, Fortescue is still trading at a lower P/E ratio than both BHP and Rio. That could mean the Fortescue share price is a good buy right now, but where is it headed in 2020?

What's the outlook for the Fortescue share price?

I think the technical environment remains quite strong for the Aussie iron ore miners. Global iron ore prices have surged in recent months, which bodes well for the August earnings season.

There's also the potential for an Aussie infrastructure boom to boost demand for steel further in 2020.

There are certainly some potential headwinds looming. Frosty relations with China (a major iron ore importer) and a global economic slowdown are two of those.

The Fortescue share price is also approaching its all-time high of $15.25. That could mean it's a risky buy near the top of its trading range.

Personally, I think for a P/E ratio of 6.4 it could be a steal. However, I'll be waiting until the group's August earnings result before buying in.

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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