The company is significantly beat down due to the fact potash prices have collapsed. Because prices were materially higher one year ago today, it gives the illusion that the company is exceptionally cheap. But because potash has fallen so much, we can't expect Nutrien to earn as much moving forward. In fact, the company is expected to undergo a 50% decline in earnings and a near 40% decline in revenue in 2023 compared to 2022.
The question we need to answer is whether or not the company's dip in price has finally hit the point where it's adjusted for its expected 2023 results. And in that situation, I'd say it's pretty close. The company is trading at only 7.6 times forward earnings and near book value. As a market leader with an incredible moat, this is a relatively cheap price to pay.
In addition to this, the company's balance sheet is sound. Strong debt to equity and interest coverage ratios.
I believe there is value in Nutrien at these prices, no doubt. However, the concerning thing is the freefall of potash prices. It has fallen an additional 20% since February and continued pressure downwards will no doubt push Nutrien slower.
If I was a buyer here, which I typically am not just because I'm not a massive fan of cyclical options, especially those that rely so much on a particular commodity, I'd be slowly averaging in.
I think over the long term here, Nutrien has a good chance of being a wise purchase at these levels. But there is no doubt the company could go lower in the short term just because commodities are so volatile right now.