Investors interested in stocks from the Mining – Gold sector have probably already heard of Gold Fields (GFI) and Royal Gold (RGLD). But which of these two companies is the best option for those looking for undervalued stocks? Let’s take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, Gold Fields is sporting a Zacks Rank of #2 (Buy), while Royal Gold has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that GFI is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
GFI currently has a forward P/E ratio of 7.42, while RGLD has a forward P/E of 26.22. We also note that GFI has a PEG ratio of 0.38. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock’s expected earnings growth rate. RGLD currently has a PEG ratio of 2.62.
Another notable valuation metric for GFI is its P/B ratio of 1.78. The P/B ratio pits a stock’s market value against its book value, which is defined as total assets minus total liabilities. For comparison, RGLD has a P/B of 2.76.
These are just a few of the metrics contributing to GFI’s Value grade of A and RGLD’s Value grade of C.
GFI has seen stronger estimate revision activity and sports more attractive valuation metrics than RGLD, so it seems like value investors will conclude that GFI is the superior option right now.
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