With a daily gain of 3.42%, a three-month gain of 10.84%, and a Loss Per Share of 1.21, Pan American Silver Corp (PAAS, Financial) presents an interesting case for value investors. The question arises: is the stock modestly undervalued? This article presents a comprehensive valuation analysis of Pan American Silver (PAAS) to answer this question. Read on to uncover the intrinsic value of this stock.
Company Introduction
Pan American Silver Corp is a mining company principally engaged in the operation and development of, and exploration for, silver and gold-producing properties and assets. The company's principal products are silver and gold, although it also produces and sells zinc, lead, and copper. The company's price stands at $16.77, with a market cap of $6.10 billion. Comparing this to the company's GF Value, an estimation of fair value, provides an intriguing insight into the company's valuation.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
By this measure, Pan American Silver (PAAS, Financial) appears to be modestly undervalued. The stock's fair value, as estimated by the GF Value, considers historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. As the stock's current price of $16.77 per share is below the GF Value Line, it may be undervalued and have high future returns.
Since Pan American Silver is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with weak financial health pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are key indicators of a company's financial strength. Pan American Silver has a cash-to-debt ratio of 0.36, which is lower than 82.36% of companies in the Metals & Mining industry. The overall financial strength of Pan American Silver is 5 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Pan American Silver has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $1.70 billion and a Loss Per Share of $1.21. Its operating margin is 0.13%, which ranks worse than 54.25% of companies in the Metals & Mining industry. Overall, GuruFocus ranks the profitability of Pan American Silver at 6 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. Pan American Silver's 3-year average revenue growth rate is worse than 70.13% of companies in the Metals & Mining industry. Pan American Silver's 3-year average EBITDA growth rate is -64.5%, which ranks worse than 92.95% of companies in the Metals & Mining industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Pan American Silver's ROIC was 0.05 while its WACC came in at 7.33.
Conclusion
In conclusion, the stock of Pan American Silver (PAAS, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 92.95% of companies in the Metals & Mining industry. To learn more about Pan American Silver stock, you can check out its 30-Year Financials here.
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