Is It Too Late To Consider Pan American Silver (TSX:PAAS) After Its 1 Year Surge?

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• If you are wondering whether Pan American Silver at US$73.18 is still offering value after a strong run, the key is to separate price excitement from underlying worth.

• The stock is only slightly lower over the past week, with a decline of 0.9%, but it has returned 5.1% over 30 days, 4.5% year to date, 103.7% over 1 year, 278.7% over 3 years and 111.8% over 5 years, which naturally raises questions about what is already reflected in the price.

• Recent coverage has focused on Pan American Silver in the context of ongoing interest in precious metals producers, as investors reassess how mining companies fit into diversified portfolios. This broader attention helps explain why the stock has seen substantial gains, as sentiment around metals and mining has shifted periodically over recent years.

• Even with that backdrop, Pan American Silver currently scores 1 out of 6 on Simply Wall St’s valuation checks. The next sections will walk through what different valuation methods say about the stock and finish with a more rounded way to think about value that goes beyond any single model.

Pan American Silver scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Pan American Silver Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes estimates of the cash a company could generate in the future and discounts those back to today to arrive at an implied value per share.

For Pan American Silver, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is reported at $1.21b. Analyst and extrapolated estimates suggest free cash flow of $1.53b in 2029, with a set of ten year projections that gradually taper after the analyst forecast window and are then extended by Simply Wall St.

By discounting these projected cash flows back to today, the model arrives at an estimated intrinsic value of $87.09 per share. Compared with the current share price of CA$73.18, this implies the stock is 16.0% undervalued on this DCF view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Pan American Silver is undervalued by 16.0%. Track this in your watchlist or portfolio, or discover 8 more high quality undervalued stocks.

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

Approach 2: Pan American Silver Price vs Earnings

For profitable companies, the P/E ratio is a straightforward way to connect what you pay for each share with the earnings that support that price. It lets you quickly compare how the market is pricing one stock versus others that generate profits.

What counts as a “normal” or “fair” P/E depends on how the market views a company’s growth potential and risk. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk often comes with a lower P/E.

Pan American Silver currently trades on a P/E of 17.53x. That sits above both the Metals and Mining industry average of 16.25x and the peer average of 14.79x. Simply Wall St also calculates a Fair Ratio of 17.13x for Pan American Silver. This Fair Ratio is a proprietary estimate of what the P/E “should” be, given factors such as earnings growth, industry, profit margins, market cap and specific risks. This makes it more tailored than a simple comparison with peers or the broad industry.

Since the current P/E of 17.53x is only slightly above the Fair Ratio of 17.13x, the stock screens as ABOUT RIGHT on this metric.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Pan American Silver Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives bring this to life by letting you attach a clear story about Pan American Silver to your own assumptions for future revenue, earnings and margins, then linking that story to a financial forecast and a Fair Value that you can compare with the current price.

On Simply Wall St’s Community page, Narratives are set up so you can see and adjust these assumptions in a straightforward way. You can then quickly judge whether you view the stock as trading above or below your Fair Value and what that might mean for your next move.

As new earnings reports or news arrive, the inputs and Fair Values within Narratives are updated. This means you are not limited to a static view that goes out of date as conditions change.

For Pan American Silver, one investor might build a more optimistic Narrative that looks similar to the higher analyst Fair Value around CA$84.11, while another might prefer a more cautious Narrative closer to the lower analyst Fair Value around CA$63.05. Both can clearly see how their different stories flow through to different Fair Values and potential decisions.

For Pan American Silver, here are previews of two leading Pan American Silver narratives:

🐂 Pan American Silver Bull Case

Narrative Fair Value: CA$73.64

Implied undervaluation vs last close: about 0.6% below this fair value based on the current price of CA$73.18.

Revenue growth assumption: 19.86% a year.

• Assumes integration of Juanicipio, La Colorada Skarn development and Jacobina optimization all support higher margins and free cash flow over time.

• Builds in analyst expectations for revenue growth near 20% a year, a profit margin shift from 19.5% to 42.3% and earnings of US$2.4b by 2029.

• Uses an assumed P/E of 14.2x on 2029 earnings and a 7.23% discount rate, which together give a fair value near the analyst consensus target around CA$73.64.

🐻 Pan American Silver Bear Case

Narrative Fair Value: CA$63.05

Implied overvaluation vs last close: about 16.0% above this fair value based on the current price of CA$73.18.

Revenue growth assumption: 20.16% a year.

• Focuses on execution and capital allocation risks at assets like La Colorada Skarn, Jacobina, Huaron and the gold operations that could keep costs elevated.

• Assumes similar growth in revenue and margins to the broader analyst set, but pairs that with a lower future P/E of 11.9x and a 7.26% discount rate.

• Arrives at a fair value around CA$63.05, which is closer to the more cautious analyst price targets and implies the stock is trading ahead of this scenario.

See what the community is saying about Pan American Silver

Do you think there’s more to the story for Pan American Silver? Head over to our Community to see what others are saying!

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.

Companies discussed in this article include PAAS.TO.

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