On Sunday, UBS adjusted its stance on Imdex Limited (IMD:AU) (OTC: IMDXF), downgrading the stock from Buy to Neutral, while increasing the price target to AUD2.60 from AUD2.35. The adjustment follows a period of significant outperformance by Imdex shares, which have seen a 55% increase year-to-date. This rise has outpaced both the gold price, which has climbed 28%, and the ASX Small Industrials index with a 10% gain.
The firm cited the stock's current trading at a one-year forward Price to Earnings (P/E) ratio of 24 times, according to UBS estimates. This valuation places Imdex roughly at the mid-point of its historical P/E range, which spans from 13 times to 30 times. Previously, UBS's Buy rating was based on the stock trading attractively at the lower end of this P/E range.
UBS acknowledged that Imdex could still see considerable earnings growth if the exploration cycle turns favorably. Historical analysis by the firm over the last 15 years has shown that Imdex typically experiences an average earnings increase from trough to peak of 68%, compared to the current UBS estimate of a 30% increase. Despite this potential, the stock's recent performance has led to the neutral rating at the updated price target.
The new price target of AUD2.60 reflects the revised outlook from UBS, indicating a moderated expectation for the stock's near-term performance. The upgraded target suggests a recognition of the stock's recent gains while also signaling caution as the stock no longer presents the same value proposition as before at the lower end of its historical P/E range.
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