Wheaton Precious Metals Stock Doubles, But Stay Invested For 20% More Gains

by Trefis Team
+37.83%
Upside
39.89
Market
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Trefis
WPM
Wheaton Precious Metals
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Despite a formidable rise of 110% since its March lows of this year, at the current price of $45 per share, Wheaton Precious Metals stock (NYSE: WPM) is still undervalued. WPM’s stock has rallied from $24 on 19th March to around $45 on 17th November 2020, a rise of close to 90% as against the S&P 500 which increased 62% during this period. WPM’s stock was able to beat the broader market due to a sharp rise in gold prices during the current pandemic, which benefited the company, as over 60% of its revenue is contributed by gold. The remaining portion comes from silver and palladium which have also seen an increase in prices. Though the stock is almost 110% higher than the levels seen at the end of 2017, we believe that this increase is justified. In fact, WPM’s stock is likely to see a significant upside of over 20% from here. Our dashboard What Factors Drove 110% Change In Wheaton Precious Metals Stock Between 2017 And Now? provides the key numbers behind our thinking.

WPM’s revenues increased by over 2% during 2017-2019 period. However, the increase in stock price was mainly driven by the rise in the P/S multiple from 11x in 2017 to 15x in 2019. This is mainly due to the sharp rise in gold prices and with the company diversifying by starting palladium mining in 2018. Though the multiple shot up further in 2020 and currently stands at over 23x, it is not expected to record any further major rise in the near future. But that is not going to lead to a drop in price as higher revenues are likely to provide further upside to the stock.

Upside Trigger?

A slowdown in economic and industrial activities and expectations of a global recession, following the outbreak of coronavirus this year, has increased gold’s value as a hedging instrument. Global gold prices have increased from about $1,500/ounce at the beginning of 2020 to close to $1,900/ounce currently due to higher demand. Following the New San Dimas agreement, the company has increased its focus on gold in place of silver. The share of gold in WPM’s total revenue increased from 50% in 2017 to 63% in 2019. Thus, the current crisis has so far helped WPM with better price realization for gold as well as silver. This was reflected in the Q2 and Q3 2020 results of the company where WPM revenues marked a y-o-y growth of 31% and 37%, respectively. Higher revenue was driven by healthy growth across all its three segments – gold, silver, and palladium.

However, there have been signs of lifting of the global lockdowns over recent months. As the global economy opens up and lockdowns are lifted in phases, supply constraints are likely to ease. Any further recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. With precious metals’ prices expected to remain elevated, the company’s revenue is set to register a healthy growth in 2020 as well as 2021. Higher revenues and an elevated P/S multiple will drive the stock further. As per Trefis, Wheaton Precious Metals valuation works out to $55 per share. This reflects a potential upside of more than 20% from its current level.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

 

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