Stock Valuation: Saracen Mineral Holdings Ltd (SAR)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
SARACEN MINERAL HOLDINGS LTD Australia/
ASX
Basic Materials – Metals & Mining – Gold AUD1.89
@ 03 Sep 2018
COMPANY PROFILE Saracen Mineral Holdings Ltd is engaged in exploration and development, production of gold. The Company produces gold from its Carosue Dam mine located notheast of Kalgoorlie, Western Australia.

Saracen Mineral Holdings is a gold mining and exploration company. The company has two business segments: Saracen Gold Mines and Saracen Metals. The Saracen Gold Mines company is engaged in the exploration and production of gold. The Saracen Metals segment is engaged in the exploration and production of various other metals. Saracen Mineral Holdings controls various operations in Australia, such as the Carosue Dam, Thunderbox, and Agnew-Wiluna belt. The company generates the vast majority of its revenue in Australia.

Stock Code SAR
Valuation Analysis Below

Saracen Mineral Price to EBIT

The Price Earnings (PE) Ratio is the most frequently used valuation indicator for a stock. However, there are times when this ratio cannot be used e.g. when the company reports a loss or profit is so minimal that it results in an abnormally high PE Ratio. Or Net Profit After Tax may be volatile and it is better to use Earnings Before Interest and Tax (EBIT) to value the company. We use the PE Band or Price/EBIT Band to show whether a stock is overvalued or undervalued based on its historical valuation.
At the price of AUD1.89 as at 03 Sep 2018, Saracen Mineral Holdings Ltd is trading at a Market Cap/EBIT Ratio of 12.7 times last 12 months earnings.  This is a 24.7% discount to its current fair P/EBIT Ratio of 16.9 times. (Price based on the historical average Market Cap/EBIT Ratio of the company is indicated by the red line.)
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Company description, historical financial statements data and price data are from gurufocus.com or moneycontrol.com. Estimates are from marketscreener.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

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