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Why North American Palladium Ltd. (TSE:PDL) Is An Attractive Investment To Consider

Simply Wall St

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I've been keeping an eye on North American Palladium Ltd. (TSE:PDL) because I'm attracted to its fundamentals. Looking at the company as a whole, as a potential stock investment, I believe PDL has a lot to offer. Basically, it is a financially-sound company with an impressive history of performance, trading at a discount. In the following section, I expand a bit more on these key aspects. For those interested in digging a bit deeper into my commentary, read the full report on North American Palladium here.

Flawless balance sheet with outstanding track record

PDL delivered a triple-digit bottom-line expansion over the past couple of years, with its most recent earnings level surpassing its average level over the last five years. This strong performance generated a robust double-digit return on equity of 25%, which is an optimistic signal for the future. PDL's ability to maintain an adequate level of cash to meet upcoming liabilities is a good sign for its financial health. This implies that PDL manages its cash and cost levels well, which is a key determinant of the company’s health. PDL currently has no debt on its balance sheet. This implies that the company is running its operations purely on off equity funding. which is typically normal for a small-cap company. Investors’ risk associated with debt is virtually non-existent and the company has plenty of headroom to grow debt in the future, should the need arise.

TSX:PDL Income Statement, July 5th 2019

PDL's shares are now trading at a price below its true value based on its discounted cash flows, indicating a relatively pessimistic market sentiment. This mispricing gives investors the opportunity to buy into the stock at a cheap price compared to the value they will be receiving, should analysts' consensus forecast growth be correct. Also, relative to the rest of its peers with similar levels of earnings, PDL's share price is trading below the group's average. This further reaffirms that PDL is potentially undervalued.

TSX:PDL Price Estimation Relative to Market, July 5th 2019

Next Steps:

For North American Palladium, there are three relevant factors you should look at:

  1. Future Outlook: What are well-informed industry analysts predicting for PDL’s future growth? Take a look at our free research report of analyst consensus for PDL’s outlook.
  2. Dividend Income vs Capital Gains: Does PDL return gains to shareholders through reinvesting in itself and growing earnings, or redistribute a decent portion of earnings as dividends? Our historical dividend yield visualization quickly tells you what your can expect from PDL as an investment.
  3. Other Attractive Alternatives : Are there other well-rounded stocks you could be holding instead of PDL? Explore our interactive list of stocks with large potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.