Discovery Silver (TSX:DSV) Valuation in Focus After Landmark Resource Agreement Resolves Legal Challenge

Discovery Silver (TSX:DSV) shares drew attention after announcing a Resource Development Agreement with Taykwa Tagamou Nation. This move formally ends a legal dispute and establishes a foundation for future collaboration.

See our latest analysis for Discovery Silver.

Resolving a major legal challenge sent fresh signals to the market, and Discovery Silver’s 44% share price return over the past 90 days shows how quickly momentum can build. While there was a sharp pullback last week, the long-term story remains compelling. Total shareholder returns over the last year are up an eye-catching 375%, and the stock’s run so far in 2024 has outpaced nearly everything else on the TSX.

If this recent deal has you thinking bigger, now’s an ideal moment to broaden your investing outlook and discover fast growing stocks with high insider ownership

But with the stock already soaring this year and trading below analyst targets, investors face a key question: Is Discovery Silver still undervalued, or has the market already priced in all the future growth?

Price-to-Sales of 20x: Is it justified?

Discovery Silver’s shares currently trade at a price-to-sales ratio of 20x. This figure is notably higher than the Canadian Metals and Mining industry average and sets the stage for bold expectations.

The price-to-sales ratio helps investors understand how much they are paying for every dollar of the company’s annual sales. In a sector where profits can swing and earnings may be negative, this measure is often used as a yardstick to value growth-stage miners like Discovery Silver.

At 20x sales, investors are pricing in superior revenue growth. However, this valuation does carry risk. Compared to its Canadian Metals and Mining peers, which on average trade at just 5.8x, Discovery Silver’s stock commands a significant premium. Analysis suggests a Fair Price-to-Sales Ratio of 23.1x, highlighting where the market could recalibrate if the company meets high growth forecasts.

Explore the SWS fair ratio for Discovery Silver

Result: Price-to-Sales of 20x (UNDERVALUED)

However, slower revenue growth than expected or continued losses could quickly change investor sentiment and put pressure on Discovery Silver’s high valuation.

Find out about the key risks to this Discovery Silver narrative.

Another View: What Does the SWS DCF Model Say?

Taking a different approach, our DCF model estimates Discovery Silver’s fair value to be CA$7 per share. This is nearly 29% above the recent price. This implies the stock could be undervalued if cash flows materialize as expected. However, how reliable are those growth forecasts?

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 Discovery Silver 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 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Discovery Silver Narrative

If you see things differently or like to dig into the numbers on your own terms, you can build your own view of Discovery Silver in just a few minutes. Do it your way

A great starting point for your Discovery Silver research is our analysis highlighting 4 key rewards and 2 important warning signs that could impact your investment decision.

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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.

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