Stock Analysis
Highland Gold Mining Limited (LON:HGM) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of £1.467 is based on unrealistic expectations. Below I will be talking through a basic metric which will help answer this question.
View our latest analysis for Highland Gold Mining
What can we expect from Highland Gold Mining in the future?
The excitement around Highland Gold Mining's growth potential is not unfounded. The consensus forecast from 3 analysts is extremely bullish with earnings per share estimated to rise from today's level of $0.210 to $0.320 over the next three years. On average, this leads to a growth rate of 19% each year, which signals a market-beating outlook in the upcoming years.
Is HGM's share price justified by its earnings growth?
Highland Gold Mining is trading at quite low price-to-earnings (PE) ratio of 9.1x. This tells us the stock is undervalued relative to the current GB market average of 16.38x , and undervalued based on its latest annual earnings update compared to the metals and mining average of 9.17x . This multiple is a median of profitable companies of 24 Metals and Mining companies in GB including En+ Group, Shanta Gold and Arc Minerals.
Given that HGM's price-to-earnings of 9.1x lies below the industry average, this already indicates that the company could be potentially undervalued. However, to properly examine the value of a high-growth stock such as Highland Gold Mining, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 9.1x and expected year-on-year earnings growth of 19% give Highland Gold Mining an extremely low PEG ratio of 0.47x. Based on this growth, Highland Gold Mining's stock can be considered relatively cheap , based on the fundamentals.
What this means for you:
HGM's current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you're a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Financial Health: Are HGM’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has HGM been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of HGM's historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.
