Assessing Pan American Silver (TSX:PAAS) Valuation After Exploration Update and New Resource Discoveries

Pan American Silver (TSX:PAAS) just dropped a dense exploration update, and it is exactly the kind of thing resource investors should care about: fresh drill results that can quietly reshape future production.

See our latest analysis for Pan American Silver.

That backdrop helps explain why, even after a soft 1 day share price return of 1.37 percent, Pan American’s 30 day share price return of 26.61 percent and year to date share price return of 122.11 percent point to powerful, building momentum that mirrors its 1 year total shareholder return of 119.95 percent and hefty 3 year total shareholder return of 233.33 percent.

If this kind of run has you wondering what else might surprise to the upside, now is a good time to broaden your search and discover fast growing stocks with high insider ownership.

Yet with Pan American trading close to analyst targets but still showing a substantial intrinsic value gap and rapidly improving profits, investors face a key question: is there still a buying opportunity, or is future growth already priced in?

Price-to-Earnings of 33.1x: Is it justified?

On pure valuation, Pan American Silver looks expensive at CA$68.41, with its 33.1x price to earnings ratio sitting well above key benchmarks.

The price to earnings multiple compares what investors pay today with the company’s current earnings, a core yardstick for mature, profitable miners. For Pan American, a 33.1x multiple suggests the market is baking in strong and sustained profitability after its recent move into the black.

However, there is tension in the numbers. That 33.1x price to earnings ratio is higher than our estimated fair price to earnings ratio of 28.3x. This is a level our models indicate the market could eventually gravitate toward as expectations reset. It is also rich versus the wider Canadian metals and mining industry, where the average price to earnings ratio is 21.5x. Even so, Pan American screens as good value against a much more expensive peer group whose average sits at 65.7x.

Explore the SWS fair ratio for Pan American Silver

Result: Price-to-Earnings of 33.1x (OVERVALUED)

However, risks remain, including potential commodity price reversals and operational setbacks across its multi jurisdictional portfolio that could quickly undermine today’s optimistic valuation.

Find out about the key risks to this Pan American Silver narrative.

Another View: Our DCF Signals Undervaluation

Our DCF model tells a very different story. At CA$68.41, Pan American trades about 35 percent below our fair value estimate of roughly CA$105.83. This implies the market may be underpricing its future cash flows rather than overpaying for recent earnings momentum.

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 Pan American 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 908 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 Pan American Silver Narrative

If you see the story differently or want to dig into the numbers yourself, you can build a custom view in just minutes: Do it your way.

A great starting point for your Pan American Silver research is our analysis highlighting 3 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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