It is fair to say that Fortescue Ltd (ASX: FMG) shares have been a great place to invest over the last 12 months.
During this time, the iron ore miner's shares have outperformed the market significantly with a gain of over 33%.
This would have turned a $10,000 investment into approximately $13,300.
In addition, over this period the mining giant has paid out total fully franked dividends of $2.08 per share. This boosts the total return to approximately 44% and means a $10,000 investment would have become $14,400 including dividends.
But those returns are now firmly behind us. So, let's take a look at what could happen in the future with another $10,000 investment.
Investing $10,000 in Fortescue shares
Firstly, with Fortescue shares currently trading at $26.51, a $10,000 investment (plus an extra $20.78) would lead to you owning 378 units.
Let's now see what those units could be worth in 12 months.
Unfortunately, analysts at Goldman Sachs don't believe that history will repeat itself for investors between now and this time next year. In fact, the broker thinks that Fortescue shares are overvalued and could be destined to crash deep into the red.
According to a recent note, Goldman has a sell rating and a $16.90 price target on the company's shares.
If this recommendation proves accurate, it will give those 378 Fortescue shares a market value of $6,388.20. That's approximately 36% less than you started with.
And Goldman isn't expecting the Fortescue dividend to be anywhere near as generous in FY 2024 and FY 2025.
The broker is forecasting a fully franked FY 2024 final dividend of 83 cents per share and then total dividends of 93 cents per share in FY 2025.
If we assume the usual second-half weighting for its dividend payments, this could mean an interim dividend of 39 cents per share for FY 2025.
This brings its total estimated dividends for the next 12 months to $1.22 per share. Based on its current share price, this would mean a 4.6% dividend yield. And for those 378 shares, it would generate $461.16 in dividends.
This leaves us with a holding valued at $6,849.36 including dividends, well short of our initial investment of $10,000.
Commenting on its sell rating, Goldman said:
We continue to rate FMG a Sell on: 1. Relative valuation: the stock is trading at a premium to RIO & BHP on our estimates; 1.4x NAV vs. BHP at c. 0.9x NAV and RIO at 0.9x NAV, ~7.0x NTM EV/EBITDA (vs. BHP/RIO on c. 5.5x/4.5x), and c. 2% FCF vs. BHP/RIO on c. 6%/7%.
Though, it is worth acknowledging that Goldman has been calling Fortescue shares overvalued for well over a year and this didn't stop them smashing the market over the past 12 months. So, it certainly isn't set in stone that this miner's shares are about to crash. But don't be surprised if they do.
