Is the Rio Tinto Share Price too Cheap to Ignore?

Summary:
• Rio Tinto share price has bounced back in the past few days as amid optimism that commodities will rebound.

Rio Tinto share price has bounced back in the past few days as amid optimism that commodities will rebound. It rose to a high of 5,165p, which was about 15% from the lowest level in July. The shares rose by more than 17% from the lowest level in 2021. What next for Rio stock?

Is Rio Tinto a good buy?

Rio Tinto share price has been under intense pressure in the past few months as commodity prices collapse. Copper prices have plunged by more than 32% from their highest level in 2021. At the same time, other metals like iron ore, borates, and lithium have declined recently as worries about China continue. Analysts believe that the commodity supercycle is winding down.

China has been going through its worst financial crisis in the past few months. The real estate sector is unraveling and the Covid-zero strategy is causing substantial pain. Analysts expect that the country’s economic growth will lag its Asian peers this year. This is important since China is the biggest buyer of commodities. 

Still, there are severa reasons why Rio Tinto share price will bounce back in the coming months. First, the company has a stellar balance sheet. It has over $300 million net cash and over a $7.5 billion revolving credit facility. In addition, Rio Tinto is relatively undervalued. It has an EV/EBITDA of 3.83x, which is lower than BHP’s 4.42x. Its forward PE is 6.95x compared to BHP’s 8.66x. 

Further, this valuation is still lower than its historical average. Rio Tinto also has a forward dividend yield of 9.1%, which is higher than that of other competing companies.

Rio Tinto share price forecast

The daily chart shows that the RIO share price formed a triple-top pattern that is shown in green and the neckline was at 5,045p. In price action analysis, this pattern is usually a bearish sign. It then dropped below this neckline in June this year. Most recently, the stock has managed to move above the 25-day and 50-day moving averages while the MACD moved above the neutral level.

The stock managed to move above the ascending trendline shown in black. Therefore, the stock will likely continue rising as bulls target the next key resistance level at 5,280p. The stop-loss for this trade will be at 4,900p.