The Fortescue Metals Group Limited (ASX: FMG) share price is tumbling lower on Friday.
In morning trade, the iron ore giant’s shares are down over 4% to $20.63.
Will the Fortescue share price rebound?
Unfortunately for shareholders, one leading broker believes this could be the start of greater declines.
According to a note out of Goldman Sachs this morning, its analysts have reiterated their sell rating and cut their price target down to $13.50.
Based on the current Fortescue share price, this implies potential downside of over 34% for investors over the next 12 months.
Why is Goldman bearish?
The main reason for Goldman’s bearish view on the Fortescue share price is its valuation.
For example, the broker estimates that Fortescue’s shares are trading at 1.71x forward net asset value (NAV). Whereas BHP is trading at 1.1x and Rio Tinto is trading at 0.9x.
It’s a similar story for its EV/EBITDA multiple. Goldman estimates that the Fortescue share price currently trades at 6.7x forward EV/EBITDA, whereas BHP is 4.5x and Rio Tinto is 3.9x.
Outside its valuation, the broker has concerns over the “widening of low grade 58% Fe product realisations over the medium to long term due to high coking coal prices and high steel mill margins.”
It also sees “execution and ramp-up risks on the Iron Bridge project and “uncertainties around Fortescue Future Industries (FFI) diversification and Pilbara decarbonisation.”
All in all, the broker believes investors would be better off buying BHP and Rio Tinto shares instead of Fortescue. It has buy ratings on both with price targets of $50.80 and $131.00, respectively.