Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Golden Star Resources, Ltd. (GSS - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Golden Star Resources has a trailing twelve months PE ratio of 15.3. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.7.
If we focus on the long-term trend of the stock, we note that Golden Star Resources had been recording loss per share over few quarters, thereby witnessing negative PE multiples. Nevertheless, since the past few months the company’s PE has entered positive territory again, signifying better performance. Also, the current PE level is much below the highs experienced for the stock in 2012-2013. Thus, the present level seems to be a suitable entry point for the stock from a PE perspective, especially in light of its historical trend.
Further, the stock’s PE compares widely favorably with its industry’s trailing twelve months PE ratio, which stands at 27.9 At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Golden Star Resources has a forward PE ratio (price relative to this year’s earnings) of 8.4 – lower than the current level. So, it is fair to say that a more value-oriented path may be ahead for Golden Star Resources stock in the near term.
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Golden Star Resources has a P/S ratio of about 1.3. This is much lower than the industry average, which comes in at 3x right now.
GSS is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Golden Star Resources currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Golden Star Resources a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/CF ratio (another great indicator of value) comes in at 7.9, which is slightly better than the industry average of 8. Clearly, GSS is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Golden Star Resources might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of A and a Momentum score of B. This gives GSS a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>).
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Golden Star Resources seems to have pretty striking prospects.
Meanwhile, the company’s earnings estimates have been trending upward lately. The current year consensus estimate has jumped 50% in the past month, while the next year estimate has increased 23.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Golden Star Resources, Ltd Price and Consensus
The stock holds a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term. However, Golden Star Resources is enjoying bullish analyst sentiment, as indicated by the positive estimate revisions, and this works in the company’s favor.
Golden Star Resources is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the bottom 17% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the industry it belongs to has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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