Elemental Royalty (TSXV:ELE) Valuation Check After Expanded US$150 Million Credit Facility

Elemental Royalty (TSXV:ELE) has amended its revolving credit facility, increasing available capacity to US$150 million with an additional US$50 million accordion. This financing move could influence how investors view its royalty growth optionality.

See our latest analysis for Elemental Royalty.

The facility amendment comes after a strong run in Elemental Royalty’s share price, with a 90 day share price return of 42.44% and a 1 year total shareholder return of 140.24%. This suggests momentum has been building despite a recent 7.57% one day pullback from the CA$30.51 level.

If this financing update has you thinking about other ways to gain exposure to precious metals, it could be a good time to look at our screener of 28 elite gold producer stocks.

With revenue of $33.115 million, net income of $5.113 million and a value score of 4, plus the stock trading at a 24% discount to a CA$37.88 price target, is there still a buying opportunity here or is the market already pricing in future growth?

Preferred Price-to-Sales of 42.9x: Is it justified?

Elemental Royalty is flagged as good value by our system based on a P/S of 42.9x versus an estimated fair P/S of 65.4x, yet that same 42.9x level looks expensive beside the Canadian Metals and Mining industry and its peers. With the last close at CA$30.51 and the stock trading well below our SWS DCF fair value estimate of CA$240.97, investors are getting mixed valuation signals.

The P/S multiple compares the company’s market value to its revenue, which can be useful for a royalty business where earnings can be affected by one off items. In this case, Elemental Royalty’s revenue is forecast to grow 52.5% per year, and earnings growth over the past year has been very strong compared to its own 5 year history and the wider industry. This may help explain why a higher revenue multiple is being applied.

However, when you stack 42.9x against the Canadian Metals and Mining industry average of 7.4x and a peer average of 7.1x, the premium is significant. The fair P/S estimate of 65.4x implies that, if market expectations stay aligned with that relationship, the multiple could move even higher rather than closer to sector norms. This is a very different message to what simple peer comparison suggests.

Explore the SWS fair ratio for Elemental Royalty

Result: Price-to-Sales of 42.9x (OVERVALUED)

However, you still need to weigh risks, such as a sharp reversal in gold prices or project specific setbacks that could quickly challenge today’s rich P/S multiple.

Find out about the key risks to this Elemental Royalty narrative.

Another View on Value: What the DCF Says

While the current P/S of 42.9x looks rich against peers, our DCF model presents a different perspective. With the share price at CA$30.51 versus an SWS DCF fair value estimate of CA$240.97, the model suggests the stock is trading at a very large discount. This raises the question of which signal is more informative.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Elemental Royalty for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 9 high quality undervalued stocks. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

Next Steps

Feeling torn between the upside case and the clear risks around Elemental Royalty? Take a close look at the data, move promptly, and weigh both sides for yourself. Then round out your view with 4 key rewards and 3 important warning signs.

Looking for more investment ideas?

If you want to keep your momentum going, use the Simply Wall Street Screener to quickly spot fresh ideas that fit your style before others do.

This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com