You can’t evaluate most gold stocks the same way you would a regular business – like Microsoft, McDonalds or Nike.
If you try, you will find that most gold stocks don’t have the same kind of business model, let alone the kind of data you need to compare them on an apples-to-apples basis.
Consider: Microsoft can sell as many licenses to its software as it wants. There’s no practical limit to how many copies of Windows it sells. It can (and does) raise its prices as needed.
But a gold miner is limited in multiple ways.
- If it sells gold below what it costs to produce it, the company goes out of business sooner or later. The gold miner can’t control what price it gets.
- It can only sell as much gold as it is able to produce.
- It eventually will run out of gold in the ground unless it’s able to find more through exploration or acquisition.
When people come up with valuations for regular businesses with regular products, they have a relatively easy calculation. They simply look at projections and the trajectory over previous quarters.
But many of the best opportunities in the gold mining sector are pre-revenue, or in a growth period where their previous quarters of earnings are irrelevant.
There is no established trajectory.
Benjamin Graham outlined the key metrics for finding value stocks over 75 years ago, and came up with 7 criteria. For the kinds of pre-revenue gold stocks I mostly cover, most of these criteria are not applicable.
Graham talks about things like price to earnings, price to book, dividends, growth in earnings per share – which just don’t really transfer to evaluating gold stocks.
These metrics and others are still important. They’re still the gold standard for evaluating most stocks – and they’ve been completely formalized by Wall Street. There’s no information advantage to knowing Microsoft has a low PE. A million trading algorithms run by the world’s most powerful computers have already squeezed the data for every penny.
But these same algorithms completely ignore pre-revenue gold stocks for the reasons I just mentioned.
There’s nothing for them to evaluate – because these algorithms only look at publicly available SEC filings.
That means if you want to find deals in gold stocks, you have to use completely different kinds of valuation metrics. You have to look at intangibles like management, location, grade, infrastructure, political stability…
You have to analyze how likely it is that a gold prospect will turn into a gold mine.
Algorithms don’t do that.
But you know who does?
25-year veteran gold mining analysts, like me. I say like me, but there really aren’t that many people out there like me. The ones that do exist certainly aren’t writing 3x weekly free newsletters: they’re working for massive gold firms or hedge funds.
Right now, I can tell you: there are a handful of amazing projects that are pre-revenue and wildly undervalued.
The deals are coming. I wrote to readers of my paid services this morning that I am going to be adding positions this week.
There’s really no comparison to be made with regular stocks in the stock market – but I can tell you we’re now getting to the point where we can buy dimes and nickels for a penny. I believe if you can put some money to work in select opportunities during this downturn in the metal, you’ll have many chances to earn 5X-10X your stake.
Click here to see my best offer for my paid research.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio