One of the cheapest stocks in our All Investable Stock Screener is SSR Mining Inc (NASDAQ:SSRM).
SSR Mining Inc (SSR), is a Vancouver-based mining company focused on the operation, development, exploration and acquisition of precious metal projects.
A quick look at SSR’s share price history over the past twelve months shows that the price is down 33%, but here’s why the company is undervalued.
The following data is from the company’s latest financial statements, dated June 2017.
The company’s latest balance sheet shows that SSR has $528 Million in total cash and cash equivalents. Further down the balance sheet we can see that the company has $227 Million in long-term debt and no short-term debt. Therefore, SSR has a net cash position of $301 Million (cash minus debt).
If we consider that SSR currently has a market cap of $1.183 Billion, when we add the minority interests totaling $19 Million and subtract the net cash totaling $301 Million that equates to an Enterprise Value of $901 Million.
If we move over to the company’s latest income statements we can see that SSR has $151 Million in trailing twelve month operating earnings* which means that the company is currently trading on an Acquirer’s Multiple of 5.97, or 5.97 times operating earnings. That places SSR 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 SSR generated trailing twelve month operating cash flow of $196 Million and had $48 Million in Capex. That equates to $148 Million in trailing twelve month free cash flow, or a FCF/EV Yield of 16%.
In terms of the company’s annualized Return on Invested Capital (ROIC) for the quarter ending June 2017. A quick calculation shows that the company had $645 Million in invested capital for the quarter ending March 2017 and $692 Million for the quarter ending June 2017. If we divide that number by two we get $668 Million in average invested capital. If we then consider that the company had $144.8 Million (ttm) in operating income multiplied by the tax rate (1 – 5.65%), that equates to NOPAT of $136.6 Million (ttm). Then when we divide the NOPAT of $136.6 Million (ttm) by the average invested capital of $668 Million that equates to an annualized Return on Invested Capital (ROIC) for the quarter ending June 2017 of 20% (ttm).
Lastly, the company’s trailing twelve month revenues of $506 Million are an historical high as is the operating cash flow of $196 Million (ttm) while SSR’s net income of $103 Million (ttm) is a record high since 2010.
In terms of SSR’s current valuation, the company currently holds 25% of its market cap in net cash and is trading on a P/E of 11.2 compared to its 5Y average of 18.4**, a P/B of 1.2 compared to its 5Y average of 1.0**, and a P/S of 2.4 compared to its 5Y average of 3.6**. The company has a FCF/EV Yield of 16% (ttm) and an Acquirer’s Multiple of 5.97, or 5.97 times operating earnings. SSR has an annualized Return on Invested Capital (ROIC) for the quarter ending June 2017 of 20% (ttm). All of which indicates that SSR is undervalued.
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