Wesdome Gold Mines (TSX:WDO) Drilling Win Keeps Valuation In Focus

Wesdome Gold Mines (TSX:WDO) is back in focus after fresh drilling results at its Kiena mine confirmed a high-grade Norbenite Footwall Zone and outlined a new VZ Zone near existing workings.

That exploration update has arrived after a powerful run in Wesdome Gold Mines’ shares, with a 90 day share price return of 28.38% and a year to date share price gain of 61.42%, contributing to a very large 3 year total shareholder return of about 4x. This suggests strong positive momentum rather than a short lived reaction to a single drilling headline.

Scan for other gold producers showing similar drilling momentum and near-mine upside by reviewing the 35 elite gold producer stocks alongside Wesdome Gold Mines on your watchlist.

After a CA$35.06 close and a year to date gain above 60%, the key tension around Wesdome Gold Mines is simple. Is most of the upside already in the rearview mirror, or is valuation still leaving room ahead?

Preferred P/E of 12.1x: Is it justified?

On the numbers, Wesdome Gold Mines looks inexpensive against its own earnings profile as well as broader Canadian metals peers, even after the strong share price run.

The preferred metric here is the P/E ratio. At 12.1x earnings, you are paying a little more than the peer average of 11.4x for each dollar of profit, but still below the Canadian Metals and Mining industry on 16.9x. For a business generating a 40.7% return on equity and net profit margins of 38.5%, that gap to the wider sector suggests that the market is not fully pricing in current profitability.

P/E simply compares the current share price to earnings per share. For a producer like Wesdome Gold Mines with a track record of high quality earnings and strong return on equity, this ratio is a quick way to see how much the market is charging for those profits. A lower P/E relative to an estimated fair level can indicate that investors are being cautious about how sustainable that performance is, or are waiting for more evidence that recent earnings growth can continue.

There is also an internal benchmark. The SWS fair P/E estimate for Wesdome Gold Mines is 15.9x, above both the current 12.1x multiple and the peer average. That fair ratio is a level the valuation could move toward if the market aligns the share price more closely with current earnings quality and the company’s forecast profit growth.

Explore the SWS fair ratio for Wesdome Gold Mines

Result: Price-to-earnings of 12.1x (UNDERVALUED)

Still, Wesdome Gold Mines relies on just two producing assets in one country, so any operational setback or local regulatory change could quickly challenge today’s valuation narrative.

Find out about the key risks to this Wesdome Gold Mines narrative.

Another view on Wesdome Gold Mines’ value

The SWS DCF model presents a much stronger picture than the 12.1x P/E suggests. On this cash flow view, Wesdome Gold Mines at CA$35.06 is trading at roughly a 50% discount to an estimated value of CA$70.07. This implies that the P/E gap may only tell part of the story. If cash generation holds closer to model assumptions, is the market being too cautious?

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 Wesdome Gold Mines 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 5 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

Mixed signals on Wesdome Gold Mines so far, with both risks and rewards in play. Move fast and weigh the data yourself with the 3 key rewards and 1 important warning sign

Looking for more investment ideas beyond Wesdome Gold Mines?

If Wesdome Gold Mines has your attention, broaden your watchlist with other targeted ideas instead of waiting for the next headline to arrive.

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