The Fortescue Ltd (ASX: FMG) share price is trading around $16.29 on Friday, only slightly above its 52-week low of $16.13.
At first glance, that might look like an attractive entry point for one of Australia's biggest miners.
But I think the valuation needs a closer look before calling the shares cheap.
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Cheap based on past earnings
Fortescue generated earnings per share (EPS) of $1.71 in FY26. Against today's share price, that puts the stock on a price-to-earnings (P/E) ratio of roughly 9.5 times.
That certainly looks inexpensive. The company also paid $1.08 per share in dividends for FY26, which represents a high trailing dividend yield at the current share price.
The problem is that analysts are not expecting those earnings or dividends to hold.
Consensus forecasts point to EPS falling to $1.33 in FY27, then to $1.21 in FY28, and to $1.12 in FY29.
That changes the valuation considerably. At $16.29, Fortescue is trading on around 12 times FY27 earnings, rising to roughly 13.5 times FY28 earnings and about 14.5 times FY29 earnings.
So the further out I look, the less obvious the bargain becomes.
The dividend tells a similar story
The income outlook follows the same direction.
Consensus forecasts point to dividends of 85 cents per share in FY27, 76.8 cents in FY28, and 70 cents in FY29.
Those would still provide reasonable yields at today's price, but they are a long way below the $1.08 paid in FY26.
For income investors, I think that is important. A high historical yield can look tempting, but what ultimately counts is what Fortescue can afford to distribute from future earnings.
Right now, the market expects both profits and dividends to decline.
What could push the Fortescue share price higher?
For me, the key would be a change in the earnings trajectory.
If consensus forecasts remain where they are, I struggle to see why investors would suddenly pay a much higher earnings multiple for Fortescue.
A stronger iron ore price could change that picture, as could better-than-expected production, costs, or progress elsewhere in the business.
But based on the numbers currently expected, the company would be earning far less in FY29 than it did in FY26.
That makes it difficult for me to build a strong re-rating case.
Would I buy Fortescue shares?
I would stay on the sidelines for now.
I think Fortescue is more of a hold than a sell at $16.29. The valuation is not excessive, and existing shareholders may still be comfortable owning the business through the commodity cycle.
But if I were putting fresh money into the resources sector, I would prefer BHP Group Ltd (ASX: BHP) shares.
BHP gives investors exposure to both iron ore and copper, which provides a broader mix of commodity drivers and, in my view, a stronger long-term growth story.
Foolish takeaway
The Fortescue share price looks cheap based on FY26 numbers. The problem is that the forecasts are heading in the wrong direction.
Until I see signs that earnings can stabilise or start growing again, I think the shares are closer to fair value than bargain territory.
For now, I would hold rather than buy.
