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Is the Sirius Minerals share price heading for 45p again?

Peter Stephens

The highest level at which Sirius Minerals (LSE: SXX) has traded is 45p per share. It achieved this level in August 2016, but since then its valuation has come under pressure.

Now though, the company seems to be on a comeback towards its previous high. News released by the stock appears to be positive, and investors seem to be more upbeat about its prospects than they have been for a number of months.

Could a return to a previous high be on the cards? Or is another potential recovery opportunity more appealing for long-term investors?

Favourable outlook

Given the news that has been released by Sirius Minerals in recent months, it is perhaps unsurprising that its share price has risen by 50% to 34p. It is on track to deliver its production facility in North Yorkshire on time and on budget, and continues to make progress with its overall strategy. For example, offtake agreements for a significant proportion of its planned production have already been signed, with there being sufficient time between now and first production in 2021 for it to sign further agreements.

In addition, its financing plans seem to be progressing as well as can be expected. Improved sentiment and a higher share price may suggest that appetite for the company’s business plan remains high. Should it be able to deliver on its Stage 2 financing, its stock price could enjoy further gains over the medium term.

Valuation

Valuing a stock such as Sirius Minerals is incredibly difficult. It requires a significant amount of guesswork, and ultimately what matters to many of its investors is where its share price will be in five or 10 years’ time, rather than how it will perform during the remainder of the year.

Ultimately, though, a level of 45p still seems cheap when you consider that the company aims to be producing 10m tonnes of POLY4 fertiliser by 2024. The profit margins at current prices and using expected cost guidance seem to be high, and this could lead to the stock generating impressive levels of profitability over the long run.

As a result, if the market valued it at 45p per share back in 2016, then the stock appears to be worth significantly more than that today due to the progress it has made since then. Therefore, further growth could be ahead.

Recovery potential

Also having the potential to move closer to its recent share price high is digital advertising specialist Rhythmone (LSE: RTHM). It released an encouraging set of results on Thursday for the full year. They showed a rise in revenue of 71% to $255.1m, driven by on-platform performance and acquisitions. The company’s acquisitions seem to be integrating successfully, and it is in the process of delivering on the planned synergies from the deals.

Looking ahead, Rhythmone is forecast to post a rise in earnings of 18% in the next financial year. Despite a strong rate of growth and what seems to be a solid strategy, it trades on a price-to-earnings growth (PEG) ratio of just 0.3. This suggests that it may be undervalued and could offer share price growth potential.

Certainly, a return to its five-year high of 2,100p seems unlikely, given that it trades at a tenth of that price. But with a wide margin of safety, its capital growth could be impressive.

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Peter Stephens owns shares of Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.