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New Gold (TSX:NGD) has caught investor attention after a sharp move in its share price, with the stock showing strong returns over the past month and past 3 months.
See our latest analysis for New Gold.
The recent CA$17.08 share price sits against a strong backdrop, with a 30 day share price return above 40% and year to date share price return near 45%, while the 1 year total shareholder return is above 300%. This hints that sentiment and risk expectations around New Gold have shifted quickly.
If New Gold’s recent run has you thinking about what else is moving, it could be a good moment to scan aerospace and defense stocks for other potential ideas.
With New Gold posting strong recent returns, annual revenue of CA$1,242.2m and net income of CA$249.3m, the key question now is whether the current CA$17.08 price leaves upside on the table or if the market is already pricing in future growth.
Against the last close of CA$17.08, the most followed valuation narrative pegs New Gold’s fair value far higher, setting up a sharp disconnect in expectations.
This is a terrible deal for NewGold shareholders. The company has a fair value of $39 here on Simply Wall St and I believe that to be conservative. The company is 73% undervalued, and the merger has no premium, as CDE stock price has wiped out the small premium for NGD shareholders. I have been a precious metals investor for over 25 years and just about every time I have experienced one of my company holdings being bought with a stock exchange deal rather than straight cash, it has been an unmitigated disaster, as this will be should the transaction go through. This deal is great for CDE, as the premium is non-existent for NewGold shareholders. Absolutely no synergies with the combined mines. No real de-risking for NGD shareholders, as the mines hold no risk at present. I’m very disappointed with the board for approving this merger. I am not voting for this merger, and neither should you.
The narrative, led by PreciousMetalsBull, leans on rich revenue growth assumptions, firm margins and a future profit multiple that would usually signal a very different share price path. Curious which single valuation swing factor does most of the heavy lifting here.
Result: Fair Value of CA$39.00 (UNDERVALUED)
Have a read of the narrative in full and understand what’s behind the forecasts.
However, if merger terms shift further or if New Gold’s revenue and net income growth assumptions prove too optimistic, that CA$39 fair value case could quickly weaken.
Find out about the key risks to this New Gold narrative.
The CA$39.00 fair value narrative points to a large gap, but the current P/E of 40x tells a different story. That multiple is higher than the Canadian metals and mining industry at 28.9x and above peers at 34.4x, while only slightly below the fair ratio of 44.6x.
In practical terms, you are paying more per dollar of earnings than the sector and peer group. There is only a modest cushion versus the fair ratio the market could move toward. Does that premium feel justified given the risks around the merger, or is it asking too much at today’s price?
See what the numbers say about this price — find out in our valuation breakdown.
If you see the numbers differently or prefer to weigh the assumptions yourself, you can build your own view in just a few minutes, starting with Do it your way.
A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding New Gold.
If New Gold has sharpened your focus, do not stop there. Use the Simply Wall St Screener to hunt for other opportunities before they move without you.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include NGD.TO.
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