Fortuna Silver Mines

AM Stock Screener – Undervalued Fortuna Silver Mines Inc (FSM)

One of the cheapest stocks in our All Investable Stock Screener is Fortuna Silver Mines Inc (NYSE: FSM).

Get Our Activist Investing Case Study!

Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!

We respect your email privacy

Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital: Financial Products You Should Avoid?

Fortuna Silver Mines

Fortuna Silver Mines Inc (Fortuna) is a Canadian-based precious metals producer. Its business operations are comprised of mining and related activities in Latin America, including exploration, extraction, and processing of silver-lead, zinc, and silver-gold, and the sale of these products. The company operates the Caylloma silver, lead, and zinc mine in southern Peru and the San Jose silver and gold mine in southern Mexico.

A quick look at Fortuna’s share price history below over the past twelve months shows that the price is up 20%, but here’s why the company remains undervalued.

Fortuna Silver Mines Chart

(Source: Google Finance)

The following data is from the company’s latest financial statements, dated March 2018.

The company’s latest balance sheet shows that Fortuna has $218 Million in total cash and cash equivalents. Further down the balance sheet we can see that the company has $40 Million in total debt. Therefore, Fortuna has a net cash position of $178 Million (cash minus debt).

Financial strength indicators show that the company has a Piotroski F-Score of 7, an Altman Z-Score of 5.63, and an Beneish M-Score of -2.81. All of which illustrate that the company remains financial strong.

If we consider that Fortuna currently has a market cap of $889 Million, when we subtract the net cash totaling $178 Million that equates to an Enterprise Value of $711 Million.

If we move over to the company’s latest income statements we can see that Fortuna has $117 Million* in trailing twelve month operating earnings which means that the company is currently trading on an Acquirer’s Multiple of 6.08, or 6.08 times operating earnings. That places Fortuna squarely in undervalued territory.

The Acquirer’s Multiple is defined as:

Enterprise Value/Operating Earnings*

*We make adjustments to operating earnings by constructing an operating earnings figure from the top of the income statement down, where EBIT and EBITDA are constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.

It’s also important to note that if we take a look at the company’s latest cash flow statements we can see that Fortuna generated trailing twelve month operating cash flow of $81 Million and had $45 Million in Capex. That equates to $36 Million in trailing twelve month free cash flow, or a FCF/EV Yield of 5%.

In terms of Fortuna’s annualized Return on Equity (ROE) for the quarter ending March 2018. A quick calculation shows that the company had $563 Million in equity for the quarter ending December 2017 and $577 Million for the quarter ending March 2018. If we divide the combined total of both numbers by two we get $570 Million. If we consider that the company has $67 Million in net income (ttm), that equates to an annualized Return on Equity (ROE) for the quarter ending March 2018 of 12%.

Summary

In summary, Fortuna is trading on a P/E of 13.3, which is considerably lower than its 5Y average of 38.94**, and an Acquirer’s Multiple of 6.08, or 6.08 times operating earnings. The company has a strong balance sheet with a net cash position of $178 Million.  Financial strength indicators show that Fortuna has a Piotroski F-Score of 7, an Altman Z-Score of 5.63, and an Beneish M-Score of -2.81. The company also generates a FCF/EV Yield of 5% (ttm) and has an annualized return on equity of 12% for the quarter ending March 2018. All of which indicates that the company remains undervalued.

(**Source: Morningstar)

More About The All Investable Stock Screener (CAGR 25%)

From January 2, 1999 to November 29, 2017, the All Investable Stock Screener generated a total return of 6,765 percent, or a compound growth rate (CAGR) of 25.0 percent per year. This compared favorably with the Russell 3000 TR, which returned a cumulative total of 321 percent, or 6.4 percent compound.

For more articles like this, check out our recent articles here.

Article by Johnny Hopkins, The Acquirer's Multiple

LEAVE A COMMENT


Saved Articles
X
TextTExtLInkTextTExtLInk

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Congrats! Are you a smart person?

We have an exclusive targeted for being a sophisticated and loyal reader.

Welcome in the new year by signing up up for ValueWalkPremium today and get our exclusive content for 40% off. This is our second biggest discount ever!!

Use coupon code VIP20 or click on the button below

Limited time offer only ENDS 1/31/2019 or after next 30 23 subscribers take advantage whichever comes first – please do not share this discount with others

 

0