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Can Golden Star Be a Top Choice for Value Investors?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn't want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let's put Golden Star Resources Ltd.GSS stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock's current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Golden Star has a trailing twelve months PE ratio of 11.93, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.89. If we focus on the long-term PE trend, Golden Star's current PE is above its mid point level with the number having remained somewhat stable over the past few months. However, the current level is well below the highs for this stock in particular over the past few years.

Furthermore, the stock's PE also compares favorably with the Zacks classified Mining - Gold industry's trailing twelve months PE ratio, which stands at 44.27. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Golden Star has a forward PE ratio (price relative to this year's earnings) of 7.49, so it is fair to say that a slightly more value-oriented path may be ahead for Golden Star stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock's price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Golden Star has a P/S ratio of about 1.21. This is much lower than the S&P 500 average, which comes in at 2.97 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past five years.

If anything, GSS is not in the higher end of its range in the time period from a P/S metric, suggesting some level of undervalued trading-at least compared to historical norms.

Broad Value Outlook

In aggregate, Golden Star currently has a Zacks Value Style Score of 'A', putting it into the top 20% of all stocks we cover from this look, , and some of its other key metrics make this pretty clear too.

For example, its P/CF ratio (another great indicator of value) comes in at 3.82, which is far better than the industry average of 3.95. Clearly, GSS is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Golden Star might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of 'A' and a Momentum score of 'F'. As a result, Golden Star has a Zacks VGM score-or its overarching fundamental grade-of 'A'. (You can read more about the Zacks Style Scores here >> )

Meanwhile, the company's recent earnings estimates have been dismal. Both the current year and the next year have witnessed one downward estimate revision, compared to no upward revision over the last one month.

This has had a significant impact on the consensus estimate as the current year estimate has decreased by 18.2%, whereas the next year estimate has plunged almost 50%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Golden Star Resources Ltd. Price and Consensus

Golden Star Resources Ltd. Price and Consensus | Golden Star Resources Ltd. Quote

However, despite a dismal estimate revision trend, the stock promises an earnings yield of 13.1%, comparing favorably with the industry average of 4.4%. This somewhat mixed sentiment is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

Golden Star is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the bottom 18%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Mining-Gold industry has clearly underperformed the broader market, as you can see below:

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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