Having risen by 45% since the start of the year, some investors may feel that Sirius Minerals PLC (LON:SXX) (SXX.L) is now fully valued. After all, it has only briefly been higher than its current share price level.
Looking ahead, I believe that volatility may be high over the medium term. The company is still a few years away from first production, and between now and then there could be delays as well as other challenges. They could hurt investor sentiment and cause its share price to come under pressure at times.
However, I’m still optimistic about the prospects for capital growth from the SXX share price. It still seems to offer a large margin of safety which could factor in the potential risks it faces.
For instance, it has a market capitalisation of £1.6 billion at the moment, which is significantly below its project NPV of around £11 billion.
This suggests that there could be further upside ahead for Sirius Minerals and that it may still have a favourable risk to reward ratio. It has been able to deliver on its strategy thus far, with areas such as marketing and agronomy trials making progress according to its recent updates. More news on its financing could also have an impact on its share price in the near term.
And with the potential for production to commence up to six months earlier than planned due to a change in contractor, its future outlook seems to be positive.
Therefore, while it is now more highly valued than it was just a few months ago, I’m still upbeat about the Sirius Minerals share price.
Sure, it is a relatively risky stock which could experience some challenges in the coming months. But with what seems to be a low valuation and progress with its strategy, I wouldn’t be surprised if it posts further gains over the long run.