Articles
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A Rare Anomaly in the Gold Market
By caseyresearch.com
Gold stock investors have been pummeled, including myself. Worse, we’ve had to hear “I told you so” from all the gold haters in the media.
There are a few commentators expressing mild interest in gold at these levels, but one thing I haven’t heard any of them talk about is a metric that gold analysts are rarely able to use, because gold stocks just don’t get this undervalued.
Mainstream analysts sometimes talk about book value, especially when a stock appears cheap. Book value (BV) is a metric that, in essence, sets the floor for a stock price in a worst-case scenario. BV is equal to stockholders’ equity on the balance sheet, and is the theoretical value of a company’s assets minus liabilities – sometimes you’ll hear this called “net asset value” (NAV). So when a stock price yields a market capitalization (share price x number of shares outstanding) equal to BV, the investor has a degree of safety, because if it dropped lower, a buyer could theoretically come in, buy up all shares, liquidate the company’s assets, and pocket the difference.
Price to book value (P/BV) shows the stock price in relation to the company’s book value. A stock can be considered “cheap” when it is trading at a historically low P/BV. Or, even better, it can be considered objectively ” undervalued” when it is trading below book value.
Given the renewed selloff in the gold market, I wanted to see if gold equities were getting close to book values, not just because it would point to opportunity but also the margin of safety it would imply.
We analyzed the book value of all publicly traded gold producers with a market cap of $1 billion or more. The final list comprised 31 companies. We then charted book values from January 1, 2007 through last Thursday, June 27 (index equally weighted). Here’s what we found.
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