Should You Buy Nutrien Stock on a Pullback?

Nutrien (TSX:NTR) stock has seen shares drop back by 24% from 52-week highs and by more than half since all-time highs. But now could be the time to buy.

| More on:
A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.

Source: Getty Images

The once-great Nutrien (TSX:NTR) stock is down. But investors should think twice before counting it out. Despite reaching all-time highs of $148, the stock has now slumped by more than half to $70 per share as of writing. What’s more, the company fell by 24% since 52-week highs as well. Yet dig in, and investors may see this as more of an opportunity rather than a worry. So, let’s see why.

What happened?

First off, let’s look at what’s caused the drop in share price in the first place. Nutrien stock experienced a decline in operating margins over the last three quarters. Specifically, margins have decreased from 35% in the second quarter (Q2) of 2022 to 24% in Q4 2022. This contraction is primarily due to increased production costs and fluctuating fertilizer prices, which have squeezed profitability.

Furthermore, the prices of key fertilizers, including potash, nitrogen, and phosphate, have seen a moderation recently. This decline in prices is partly due to changes in global supply and demand dynamics, impacting Nutrien stock’s revenue and overall stock performance.

Fears of an economic recession have dampened the short- to medium-term demand outlook for fertilizers. This uncertainty has led to investor caution, contributing to the drop in Nutrien’s stock price. Although long-term demand prospects remain positive, the current economic climate has introduced volatility and risk.

Digging deeper

A lot of the issues then with Nutrien stock are more about broad market problems, not the stock itself. So, could the stock actually be a buy? To figure that out, we need to look at the company’s fundamental metrics.

First off, Nutrien stock offers a trailing 11.63 price-to-earnings (P/E) ratio and a forward 10.52 P/E ratio. These relatively low P/E ratios suggest that Nutrien might be undervalued compared to its historical performance and the broader market. A lower P/E can indicate a good buying opportunity if the company’s earnings are stable or expected to grow.

The company also provides a trailing price-to-sales (P/S) ratio of 0.83 and a forward of 0.91. A P/S ratio below one generally indicates that the stock is potentially undervalued relative to its revenue. This also makes it an attractive option for value investors.

Its current price-to-book (P/B) ratio of one suggests that the stock is trading at its book value, which might indicate a balanced valuation. As well, it holds a 4.26% dividend yield. A relatively high dividend yield can attract income-focused investors. Nutrien’s commitment to maintaining a strong dividend indicates financial health and a shareholder-friendly approach.

Nutrien stock also holds total debt of $13.64 billion, with a debt-to-equity (D/E) ratio of 0.55. While the company has significant debt, the D/E ratio indicates a moderate level of leverage, which can be manageable if the company continues to generate strong cash flows.

Finally, it holds an operating margin of 8.53%, a profit margin of 7.33%, and a free cash flow of $5.75. These metrics indicate that Nutrien is relatively efficient in generating profit from its operations and equity, which can be a positive sign for investors looking for stable returns. Strong free cash flow supports dividend payments and potential share buybacks, which can enhance shareholder value.

Is it a buy?

Altogether, Nutrien stock exhibits several positive attributes, such as a low P/E ratio, reasonable P/B ratio, and a solid dividend yield, making it potentially attractive for value and income investors. What’s more, analysts believe there is more to come. So, despite fears over potential macro issues in the future, on a micro level, Nutrien stock looks like one excellent buy during this pullback.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Nutrien. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

person on phone leaning against outside wall with scenic view at airbnb rental property
Dividend Stocks

2 TSX Stocks Poised to Have a Big Summer

Restaurant Brands International (TSX:QSR) stock and another darling that could be too cheap to ignore this summer.

Read more »

HIGH VOLTAGE ELECRICITY TOWERS
Dividend Stocks

Forget Fortis Stock: Buy This Magnificent Utilities Stock Instead

Looking for high dividends and returns? Then I'm sorry, but Fortis (TSX:FTS) stock probably isn't for you.

Read more »

Increasing yield
Dividend Stocks

2 High-Yield (But Slightly Risky) Stocks to Keep Your Eye on

Have these top TSX dividend stocks finally bottomed?

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks I’d Buy if They Fall a Bit

Any near-term decline in these two top Canadian dividend stocks will make them look even more attractive.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Got $3,000? 3 Dividend Stocks to Buy and Hold for the Long Term

You can buy these three Canadian dividend stocks with an investment as low as $3,000 right now and expect to…

Read more »