Is Pan American Silver (TSX:PAAS) Still Undervalued? A Fresh Look at Its Recent Share Price Rally

Pan American Silver (TSX:PAAS) stock has seen a range of moves in recent months, with some investors closely watching the company’s strong underlying fundamentals and recent performance data as a possible guide to its future direction.

See our latest analysis for Pan American Silver.

Pan American Silver’s share price momentum has accelerated over 2024, with a rally of more than 29% in the past 90 days and a year-to-date share price return of 59%. Its total shareholder return for the past twelve months stands at an impressive 43%, which highlights growing investor confidence after a mixed start to the year.

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With a share price still trading at a sizeable discount to analyst price targets and robust growth in both revenue and net income, investors must consider whether Pan American Silver remains undervalued or if all this future potential is already priced in.

Price-to-Earnings of 28.5x: Is it Justified?

Pan American Silver trades at a price-to-earnings (P/E) ratio of 28.5x, a level that sits above the Canadian Metals and Mining industry average of 21.2x. At the last close of CA$49.1, the stock appears expensive relative to its local sector peers, raising questions about what is driving such a premium.

The P/E ratio compares a company’s current share price to its per-share earnings and is widely used for valuing businesses in mature industries like mining. A higher P/E can indicate that the market expects stronger growth or superior quality of earnings in the future compared to others in the industry.

This premium valuation may be justified by Pan American Silver’s significant profit turnaround in the past year and forecasts for robust earnings growth ahead. While the market’s optimism is clear, it is also telling that our estimate of the company’s fair P/E ratio stands even higher at 35.5x. This suggests there could be room for multiple expansion if growth forecasts materialize.

Compared to the industry, Pan American Silver’s above-average P/E signals that investors are willing to pay more for its expected performance, possibly due to improving profitability and seasoned management. The current market price still trails the level implied by our fair ratio analysis, leaving open the possibility for further re-rating.

Explore the SWS fair ratio for Pan American Silver

Result: Price-to-Earnings of 28.5x (ABOUT RIGHT)

However, investors should note that declining commodity prices or unexpected operational hurdles could quickly reverse recent gains and challenge the bullish outlook for Pan American Silver.

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

Another View: DCF Model Tells a Slightly Different Story

While the earnings multiple suggests Pan American Silver might have more room to run, our SWS DCF model presents a more measured perspective. According to this method, the stock is trading about 3.5% below its estimated fair value, which means it could be seen as slightly undervalued at current levels. But does this narrow margin leave enough upside, or is the market already pricing in most of the company's future growth?

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

Keep in mind, if you’d rather draw your own conclusions from the data or prefer your independent analysis, the process of crafting your own narrative takes 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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