Assessing Pan American Silver (TSX:PAAS) Valuation as Shares Continue Their Steady Climb in 2024

Pan American Silver (TSX:PAAS) shares have seen a steady climb over the past month, catching the eye of investors who are interested in its recent price momentum. The stock’s sustained gains prompt a closer look at what is driving this trend.

See our latest analysis for Pan American Silver.

Looking at the bigger picture, Pan American Silver’s share price has steadily gained ground in 2024, reflecting a build-up in positive sentiment and renewed interest in the sector. While the 1-year total shareholder return is up nearly 1%, recent momentum hints at investor confidence gaining traction after some volatility earlier in the year.

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With shares climbing and sentiment improving, the pressing question becomes whether Pan American Silver’s stock is still undervalued based on its fundamentals, or if the market has already priced in its future growth prospects. Is there a buying opportunity, or has optimism run ahead of reality?

Price-to-Earnings of 31.7x: Is it justified?

Pan American Silver’s shares currently trade at a price-to-earnings (P/E) ratio of 31.7x, higher than most of its industry competitors. With a recent close at CA$54.72, the premium raises immediate questions about whether the market’s optimism aligns with future earnings potential.

The P/E ratio measures how much investors are willing to pay today for a dollar of future earnings. It is a widely used yardstick to compare valuation across the metals and mining sector, which is prone to sharp swings based on commodity cycles and profit outlook.

At 31.7x, Pan American Silver looks expensive compared to the Canadian Metals and Mining industry average of 23.1x. However, compared to peer companies, this valuation sits closer to the average (32.9x) and is even below the estimated fair price-to-earnings ratio of 33.8x. This suggests the market may still see untapped potential if near-term earnings materialize as forecast.

Explore the SWS fair ratio for Pan American Silver

Result: Price-to-Earnings of 31.7x (ABOUT RIGHT)

However, slowing revenue or earnings growth, or a sharp reversal in commodity prices, could quickly temper investor optimism going forward.

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

Another View: DCF Tells a Different Story

While Pan American Silver’s price-to-earnings ratio shows it in line with peers, our SWS DCF model presents a much more optimistic picture. Based on future cash flows, the stock appears to be trading significantly below its estimated intrinsic value. Could the market be overlooking a bigger upside?

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 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 would rather examine the numbers yourself and draw your own conclusions, you can easily build your own perspective in just a few minutes. Do it your way.

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