RGLD also trades at 50 times next years' expected earnings. If SLW traded at 50 times next years' earnings, it would be $46. It's not a question of a one time event this year.
SLW has greater revenue growth this year and next year. SLW also expects explosive growth by 2013. SLW stands to have greater earnings revisions due to the recent run up in silver. It is a better value. SLW is rated higher by Kitco's miner analyst for that reason.
If RGLD can have a PE of 50 times next years' earnings, why can't SLW?
Maybe this will help in your discussion . . .
From Wikipedia, the free encyclopedia
The P/E ratio (price-to-earnings ratio) of a stock (also called its "P/E", or simply "multiple") is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. Unlike EV/EBITDA multiple, P/E reflects the capital structure of the company in question. P/E is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio. The P/E ratio has units of years,[note 1] which can be interpreted as "number of years of earnings to pay back purchase price", ignoring the time value of money. In other words, P/E ratio shows current investor demand for a company share. The reciprocal of the P/E ratio is known as the earnings yield. The earnings yield is an estimate of expected return to be earned from holding the stock if we accept certain restrictive assumptions (a discussion of these assumptions can be found here).
..."By comparing price and earnings per share for a company, one can analyze the market's stock valuation of a company and its shares relative to the income the company is actually generating. Stocks with higher (and/or more certain) forecast earnings growth will usually have a higher P/E, and those expected to have lower (and/or riskier) earnings growth will in most cases have a lower P/E. Investors can use the P/E ratio to compare the value of stocks: if one stock has a P/E twice that of another stock, all things being equal (especially the earnings growth rate), it is a less attractive investment. Companies are rarely equal, however, and comparisons between industries, companies, and time periods may be misleading..."
Your question... "why can't SLW have a 100PE since RGLD does?"
My answer... "I haven't researched RGLD but there must be other factors influencing RGLD's PE because it's too high to attribute to normal operations. So, you can't simply use it as a comparison to SLW until understanding why it's so high."
You reply with basically the same question as before..."Why can't SLW have a 100PE since RGLD does?"
I've spent 5 minutes looking at RGLD for you and quickly noted 2 things. First, they had significant non-cash one-time items effecting earnings in 2010; making their PE meaningless, as I expected. They will generate $100 mil in cash flow in 2010 so they are currently trading at 27x 2010 cash flow, which is in the same neighborhood as SLW's cash flow multiple. So it's clear that RGLD's PE is an anomoly in 2010, as I suspected. Second, they suggest on page 19 of the attached presentation that their production will grow 4x by 2013.
I'm not planning to invest in RGLD and there's a lot I'm not taking the time to learn like their capital structure, capital commitments, margins, mine development risk, and so on, but I've found enough to make it clear to you that their 100x PE is not normalized and thus can't be simply cut and pasted to SLW.
Let me know if you need help with your algebra homework.
That's your explanation, and I'm simple? lol. They are in the same business. RGLD streams gold, and SLW streams silver. SLW has greater growth potential. IF RGLD has a 100PE, why can't SLW?
I'm not saying SLW deserves a 100PE, but based on it's growth potential it deserves a very high PE. It also deserves a higher PE than RGLD, which has a similar business.
Still waiting for an intelligent explanation as to why you think RGLD deserves a higher PE than SLW. Intelligent being the key word.
You are very simple.
I don't own Royal Gold and haven't studied it but I can say with almost certainty that their 100 PE isn't based on normalized operations, so you can't simply cut and paste it's PE to SLW as you suggest.
You simply saying Royal Gold is trading at 100x so SLW should too is as silly as someone saying Lehman went bankrupt so Goldman should too.
While I'm waiting, I'll explain how a fair PE is dtermined to you.
The PE is a reflection of the PEG ratio. The PEG factors in the 5 year growth estimate. Typically a fair PE is when the PEG equals 1. For example, a company with a 5 year growth forecast of 40%/year, will have a PE of 40, consequently a PEG of 1.
Stocks with great growth potential can even carry a PEG of 2 or more, where future growth of the stock is already priced in.
SLW has greater growth this year, and greater forecasted growth next year than RGLD. On top of that, silver has greater future growth potential than gold, making SLW's long term growth potential far greater than RGLD's.
Now genius, explain why RGLD deserves a 100PE, and SLW a 50PE.
"We do not mine on glaciers, and in fact, Barrick has already implemented a comprehensive range of measures to protect them as well as other sensitive environmental areas around both the Veladero mine and the Pascua Lama project," company spokesman Rodrigo Jimenez said in a statement.
"We will continue with our normal activities and comply with the applicable legal framework," he added.
It's strange but my previous 2 posts did not show up.
Anyway, if there are indeed major issues with Pascua Lama then that would mean roughly 31M oz in 2013 instead of the projected 40M oz. I know that we would get the money paid from Barrick but i would most definitely want the silver instead.
I'm hoping that it doesn't affect us since Barrick is quoted in article saying they don't drill on glaciers (i'm paraphrasing).
Here's an estimate i put together for myself regarding production going forward. PL is huge for us so any issue with that mine is significant. I've emailed IR of SLW ABX and MAI.to...hoping for a response soon. My largest holdings are those 3 and they all happen to be in Argentina so any possible issues will hurt big time.
F/Y 2010 23.5M oz
2011 30.5M oz (Penasquito comes online)
2012 31M oz
2013 40M oz (Paccua-Lama comes online)
2014 41M oz (San Dimas agreement + 1M oz)