Largo (TSX:LGO): Assessing Value After Debt Restructuring Unlocks Financial Flexibility

Largo (TSX:LGO) has reached an agreement with five Brazilian lenders to defer $84 million in principal debt repayments until at least March 2026. This arrangement is contingent on raising at least CAD 30 million in new capital by November 2025. Investors are watching how this deal could affect Largo’s financial flexibility and future growth options.

See our latest analysis for Largo.

Largo’s latest debt deal has added fresh momentum, with a 1-day share price return of over 25% and a remarkable 86% gain over the past quarter. While the company is still digging out from a multi-year total shareholder return of -56% over three years, investors appear more optimistic in the short term as new financial breathing room opens up possibilities for turning the corner.

If you’re curious what else is gaining traction lately, now is a great time to broaden your perspective and discover fast growing stocks with high insider ownership

With shares surging and the company enjoying new financial leeway, investors must weigh whether Largo remains undervalued at current levels or if the market is already factoring in future growth, which could leave little room for upside.

Price-to-Sales of 1.5x: Is it justified?

Largo is trading at a price-to-sales ratio of 1.5x, which positions the stock well below both peer and industry averages. With the last close at CA$3.52, this valuation could signal a compelling entry for value-focused investors, especially when compared to the broader market.

The price-to-sales (P/S) ratio indicates how much investors are willing to pay for each dollar of the company’s revenue. For a metals and mining company like Largo, this metric matters because industry earnings can be volatile. Revenue-based multiples can therefore provide a more stable comparison.

Largo’s P/S of 1.5x stands out sharply against the peer average of 19.5x and the Canadian metals and mining industry average of 5.8x. This discount hints that the market may be underestimating Largo’s revenue growth potential given the improved financial flexibility. However, it is worth noting that analyst and narrative earnings estimates are limited due to current unprofitability. Compared to an estimated fair price-to-sales ratio of 0.7x, Largo is still considered expensive, suggesting there could be further downside if the market resets expectations.

Explore the SWS fair ratio for Largo

Result: Price-to-Sales of 1.5x (UNDERVALUED compared to industry and peers, EXPENSIVE relative to fair ratio)

However, lingering unprofitability and the possibility of slower revenue growth remain key risks. These factors could dampen optimism around Largo’s recent financial momentum.

Find out about the key risks to this Largo narrative.

Another View: Our DCF Model Breaks Down Largo’s Value

Looking at Largo from another angle, our DCF model suggests the shares are trading at a significant discount, about 62% below the estimated fair value of CA$9.20. This signals potential upside that could challenge what traditional revenue multiples imply. Are investors missing a deeper value story?

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 Largo 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 Largo Narrative

If you’re seeing things differently or want to dive into the numbers yourself, it’s easy to build your own perspective in just a few minutes, and Do it your way.

A great starting point for your Largo research is our analysis highlighting 2 key rewards and 1 important warning sign 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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