Pan American Silver Corp (PAAS, Financial) has recently experienced a notable daily gain of 5.04%, and an impressive three-month gain of 84.06%. However, despite these gains, the company reported a Loss Per Share of $0.42. This raises a crucial question: is Pan American Silver modestly overvalued? To address this, we delve into a detailed valuation analysis that aims to provide investors with a clearer picture of the company's current market position.
Company Overview
Pan American Silver Corp is a key player in the mining sector, primarily focusing on the development and exploration of silver and gold properties. The company operates several mines including La Colorada, Dolores, and Timmins West, among others. It's not just silver and gold; the company also produces zinc, lead, and copper. Currently, the stock is trading at $22.1 per share, which stands above the GF Value of $17.32, an estimation of its fair value. This discrepancy suggests that the stock might be modestly overvalued.
Understanding GF Value
The GF Value is a proprietary measure calculated based on historical trading multiples like PE Ratio, PS Ratio, and PB Ratio, along with a GuruFocus adjustment factor that considers past returns and growth, and future business performance estimates. This value suggests a fair trading range for the stock. When a stock's price significantly exceeds the GF Value, it might indicate that the stock is overvalued, suggesting that future returns could be lower than the business growth.
Financial Strength and Stability
Assessing the financial strength of Pan American Silver, the company holds a cash-to-debt ratio of 0.41, which places it below 76.5% of its peers in the Metals & Mining industry. This metric, along with its interest coverage, is crucial for investors to consider to avoid the risk of permanent capital loss. The company's overall financial strength is rated 7 out of 10, indicating a fair position within the industry.
Profitability and Growth Prospects
Pan American Silver has shown profitability in 6 out of the past 10 years, with recent revenues hitting $2.50 billion. However, it currently faces a Loss Per Share of $0.42. The company's operating margin stands at 2.23%, which is relatively competitive within the industry. Looking at growth, the 3-year average annual revenue growth rate is 5.3%, though this is lower than many of its competitors. Additionally, its EBITDA growth rate has decreased by 15.5% over the same period, which may concern potential investors.
Comparing ROIC and WACC
A critical aspect of assessing a company's profitability is comparing its Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). For Pan American Silver, the ROIC is 1.52, significantly lower than its WACC of 9.45, indicating that the company is not generating adequate returns relative to its capital costs.
Final Thoughts
In conclusion, while Pan American Silver (PAAS, Financial) shows signs of being modestly overvalued, its financial condition and profitability remain fair. However, its growth ranks lower compared to peers, and its ROIC does not cover its capital costs, which could be a red flag for potential investors. For those interested in a deeper dive into Pan American Silver's financials, consider exploring its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns at reduced risk, check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
