Royal Gold’s Rally Continues After Earnings Beat but Is the Share Price Run Justified?

If you find yourself weighing the next move with Royal Gold, you’re certainly not alone. Investors who have been along for the ride have watched the stock climb an impressive 1.8% in just the past week, notch 8.4% gains over the past month, and deliver eye-opening returns of 48.9% year-to-date. Even more impressive, Royal Gold’s shares are up 121.3% over three years and 75.1% in the last five years. These numbers do not just look good on paper; they stand out, especially in a market where consistency has been hard to come by.

What is driving these moves? While gold prices have seen their fair share of volatility amid shifting global backdrops, Royal Gold’s unique business model appears to be appealing to investors seeking growth opportunities within the precious metals sector. The recent price momentum suggests that the market is starting to take a fresh look at the company, weighing its risk profile and potential for future outperformance.

Of course, strong share price growth can sometimes spark concern about whether the stock is still attractively valued. That is exactly where a structured valuation analysis becomes essential. Based on a 6-point valuation scorecard, Royal Gold checks the box for being undervalued in 3 out of 6 categories, giving it a value score of 3. This leaves a mixed but intriguing story, and it is time to see how those individual valuation methods line up. Stick around, because there just might be an even better way to make sense of Royal Gold’s real worth.

Royal Gold delivered 45.7% returns over the last year. See how this stacks up to the rest of the Metals and Mining industry.

Approach 1: Royal Gold Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a fundamental valuation approach that projects a company’s future cash flows and discounts them back to their present value. This process helps investors estimate what a business is truly worth today. For Royal Gold, this method provides an in-depth look at the company’s cash-generating potential over the coming years.

Currently, Royal Gold produced free cash flow of $107.7 million over the last twelve months. Analyst forecasts anticipate robust growth, projecting free cash flow to reach $1.08 billion by 2028, with long-term projections extending even further by Simply Wall St, based on extended analyst and internal estimates. These projections reflect a company expected to capitalize effectively on its unique streaming and royalty business model.

After discounting all these future cash flows back to their value today, the DCF model estimates Royal Gold’s fair intrinsic value at $375.38 per share. With the current share price trading roughly 46.6% below this estimate, the stock appears significantly undervalued from this perspective.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Royal Gold.

Our Discounted Cash Flow (DCF) analysis suggests Royal Gold is undervalued by 46.6%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Royal Gold Price vs Earnings

For profitable companies like Royal Gold, the Price-to-Earnings (PE) ratio is a widely used valuation metric that gives investors a quick sense of how much they are paying for every dollar of earnings. This makes the PE ratio suitable here, as it is especially meaningful when a company generates consistent profits year after year.

What does a “normal” or “fair” PE ratio look like? The answer typically depends on growth prospects, profitability, and risk level. Faster-growing companies or those with lower risks often deserve higher PE multiples, while companies facing challenges or uncertainties might trade at lower ratios.

Royal Gold currently trades at a PE ratio of 29.34x, a touch higher than both its peer average of 28.72x and the broader Metals and Mining industry average of 24.56x. At first glance, this might suggest the stock is priced at a premium compared to many of its industry peers.

However, the Simply Wall St “Fair Ratio” takes a more holistic approach than simple peer or industry averages. Calculated at 29.93x for Royal Gold, this proprietary figure weighs the company’s long-term earnings growth, profit margins, market cap, and risk profile, offering a tailored sense of what constitutes “fair value” for the stock. Because this approach adjusts for Royal Gold’s actual performance drivers and future outlook, it is a more meaningful benchmark.

Comparing Royal Gold’s current PE ratio of 29.34x to its Fair Ratio of 29.93x shows the stock is valued almost exactly where it should be based on its fundamentals and outlook.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Royal Gold Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is more than just a number; it is your story and perspective about a company, combining your expectations for its future revenue, earnings, and profit margins, and then connecting those beliefs to a financial forecast and an estimated fair value. Narratives turn complex analysis into an easy-to-use, visual tool, available right now on the Simply Wall St platform within the Community page used by millions of investors. By matching your Narrative’s Fair Value with the current share price, you can quickly see if you believe it is time to buy, sell, or hold. These Narratives update dynamically as new earnings reports or news break, ensuring your thesis always reflects the latest facts. For example, some Royal Gold contributors believe stable margin growth from projects like Kansanshi and Warintza justify a higher valuation of $237.00, while others see risks such as rising debt and geopolitical exposure, placing their fair value closer to $182.00. With Narratives, your investment case is clear, adaptable, and entirely your own.

Do you think there's more to the story for Royal Gold? Create your own Narrative to let the Community know!

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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