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Dundee Precious Metals Inc (TSE:DPM) is considered a high growth stock. However its last closing price of CA$3.28 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing DPM’s expected growth over the next few years.
Where’s the growth?
If you are bullish about Dundee Precious Metals’s growth potential then you are certainly not alone. Expectations from 3 analysts are extremely positive with earnings per share estimated to surge from current levels of $0.0865 to $0.411 over the next three years. On average, this leads to a growth rate of 48.50% each year, which indicates an exceedlingly positive future in the near term.
As the legendary value investor Ben Graham once said, “Price is what you pay, value is what you get.” Dundee Precious Metals is trading at price-to-earnings (PE) ratio of 28.5x, which tells us the stock is overvalued based on current earnings compared to the metals and mining industry average of 10.68x , and overvalued compared to the CA market average ratio of 16.31x . This multiple is a median of profitable companies of 25 Metals and Mining companies in CA including Winston Resources, Knick Exploration and Stelco Holdings.
We already know that DPM appears to be overvalued when compared to its industry average. But, since Dundee Precious Metals is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 28.5x and expected year-on-year earnings growth of 48.50% give Dundee Precious Metals a very low PEG ratio of 0.59x. This means that, when we account for Dundee Precious Metals’s growth, the stock can be viewed as relatively cheap , based on fundamental analysis.
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