ASX share price in focus
ASX Limited operates Australia’s primary national securities exchange. Besides being the place you go to for info on listed companies, ASX offers services behind the scenes including registry, settlement, clearing services, and exchanges for commodities and derivatives.
The company provides access to a variety of different tradeable products, including shares, futures, exchange traded funds (ETFs), managed funds, and real estate investment trusts (REITs).
ASX has a huge competitive advantage over other smaller exchanges due to its large size and established position as the go-to exchange for Australian investors. In fact, many Australian investors probably aren’t even aware that smaller exchanges exist!
BHP shares
BHP Group (formerly known as BHP Billiton) is a diversified natural resources company founded in 1885 that produces commodities for energy use and manufacturing.
BHP’s core business lines are mineral exploration and production. BHP’s assets, operations and interests are separated into three focus areas: copper and related minerals (e.g. gold, uranium, silver, zinc, etc.); iron ore; and coal (i.e. metallurgical and energy). While these categories make up the bulk of revenue and profit, the company is also diversifying into other areas such as fertiliser.
BHP shares have long been viewed as a reliable dividend-paying investment and are a common member of Australian share portfolios. It’s also one of the largest companies in Australia so if you own an ASX 200 ETF or LIC, or even have money in superannuation, chances are you already have some exposure to BHP shares.
ASX share price valuation
As a growth company, one way to put a broad projection on the ASX share price could be to compare its price-to-sales multiple over time. This can tell us how the company has historically been valued relative to its total revenue.
Currently, ASX Ltd shares have a price-sales ratio of 8.12x, compared to its 5-year average of 8.12x, meaning its shares are trading above their historical average. This could mean that the share price has increased, or that sales have declined, or both. In the case of ASX, revenue has been growing over the last 3 years. Of course, context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric, but this can be a rough starting point.
Since it is a more of a ‘blue chip’ company, we could look at the dividend yield of BHP to determine its value. If we compare it to the historical dividend yield, we can get a sense of the stability of the company and its ability to pay out income. BHP is offering a trailing dividend yield of around 5.46%, which compares to its 5-year average of 6.86%. Of course, this is just one of many ways you could put a value on BHP shares. The Rask websites offer free online investing courses, created by analysts explaining valuation methods like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! It’s important to look at multiple methods when you’re trying to value the BHP share price.
