With the Sirius Minerals PLC (LON:SXX) (SXX.L) share price having disappointed in recent months, it now seems to offer greater investment appeal in my view.
The company’s share price has fallen from a high of 34p in 2017 to its current level of 24p in just 6 months. This means that it now has a market cap of around $1.4 billion.
Of course, this may sound like a high valuation for a company which has no revenue at the moment. It may seem like an even less enticing valuation for a stock which does not expect to even start producing its POLY4 fertiliser until 2021.
This means that over the next few years, Sirius Minerals is set to generate losses and burn through cash. However, in my view, the company could be worth significantly more than its current share price.
One reason for this is its project NPV. This stands at $15 billion, which is over 10x higher than its current market cap. While forecasts are estimates and may not prove to be correct in the long run, they provide an indication that the stock may be undervalued at the moment.
With there being an opportunity for the business to generate high returns in the long run, I believe Sirius Minerals has investment appeal. Although there are several mining stocks in the FTSE 350 which are profitable and relatively cheap at the moment, I believe the stock has significant upside potential in the long run.
Demand for food is set to spiral in the coming decades, with the world’s population expected to rise by around a third to almost 10 billion people by 2050. This could provide the company with a tailwind which could push its share price higher.
Therefore, while potentially volatile and relatively risky, I’m upbeat about the prospects for the company over the coming years. I believe it has a strong growth outlook in a potentially highly-rewarding sector.