Gold prices have continued their upward ascent and are now trading at $1403 per ounce for a February futures contract. Gold stocks have subsequently continued an upward trend as well in recent weeks. For example, since January 25, 2011, leading gold stocks have shown meaningful price appreciation, including Barrick Gold Corporation (NYSE:ABX) at 11.4% and Gold Fields Ltd. (NYSE:GFI) at 8.7%.

Gold stocks typically offer limited dividends (around 1% if at all), hence the value of the investment is driven by price appreciation. This price appreciation can be driven by a couple key drivers:

- Continued revenue improvements through the price of gold
- Improved cost positions
- Increased valuation multiples based on a view of improved growth

Improving gold prices can be played through leveraged bets based on the cost structure of the company as described in my article: Cashing in on the Gold Boom (or Bust). Investors can also simply purchase the SPDR Gold Trust ETF (NYSEARCA:GLD). GLD has appreciated 4.1% since January 25, 2011. The second driver would be to review cost structures and determine which companies can continue to improve their cost structure. The third driver that I will examine is looking for companies with low multiples and favorable growth prospects .

**Analysis **The key valuation multiples to be considered are the P/E ratio, the price to sales ratio and the price to cash flow ratio. By considering a couple types of multiples it eliminates the risk that one data is an anomaly. For example, a P/E ratio can be distorted through nonrecurring earnings issues.

**Table 1: Valuation Multiples for Gold Mining Companies**

Ticker | Current P/E | Rank | Price/ Cash Flow | Rank | Price/ Sales | Rank |

JAG | 15.0 | 6 | 11.1 | 2 | 2.8 | 4 |

NEM | 11.5 | 1 | 12.7 | 6 | 3.0 | 5 |

ABX | 12.8 | 4 | 11.3 | 3 | 4.6 | 8 |

AU | 11.8 | 2 | 18.9 | 8 | 3.2 | 6 |

GFI | 17.2 | 9 | 12.0 | 5 | 2.6 | 3 |

NXG | 51.1 | 19 | 4.9 | 1 | 1.9 | 1 |

GSS | 12.4 | 3 | 63.2 | 17 | 2.4 | 2 |

KGC | 21.1 | 12 | 12.0 | 4 | 3.9 | 7 |

GRS | 13.0 | 5 | 20.3 | 10 | 5.5 | 10 |

AZK | 17.1 | 8 | 19.6 | 9 | 7.3 | 12 |

CGC-OLD | 25.7 | 16 | 14.9 | 7 | 5.1 | 9 |

IAG | 15.9 | 7 | 21.7 | 11 | 8.2 | 14 |

CGR | 18.7 | 10 | 27.2 | 12 | 6.3 | 11 |

AEM | 23.9 | 14 | 50.6 | 15 | 7.9 | 13 |

GG | 21.8 | 13 | 29.7 | 14 | 10.2 | 15 |

GOLD | 20.7 | 11 | 61.8 | 16 | 15.4 | 18 |

RGLD | 37.8 | 17 | 29.0 | 13 | 14.9 | 17 |

EGO | 25.1 | 15 | 66.3 | 18 | 12.0 | 16 |

ANV | 44.5 | 18 | 132.3 | 19 | 23.3 | 19 |

Data is provided by Zacks.com services downloaded on February 21, 2011. Current P/E reflects the price to the current estimate of fiscal year EPS. This is slightly different from the P/Es presented in the snap shots below which reflect a trailing 12 months and a forward fiscal year P/E.

**Company Snap Shots**

** Barrick Gold Corporation (ABX) - **ABX has a market capitalization of $50,690 million and an enterprise value of $53,088 million showing limited to no financial leverage. ABX shows a trailing P/E ratio of 19.7x which decreases compared to its forward P/E, which is 12.3x. ABX has an acceptable valuation at 10.5x by Enterprise to EBITDA measures. ABX has a high price to sales ratio at 4.6x.

**Agnico-Eagle Mines Limited (NYSE:AEM) **- AEM has a market capitalization of $11,930 million and an enterprise value of $12,436 million showing limited to no financial leverage. AEM shows a trailing P/E ratio of 39.5x which decreases compared to its forward P/E which is 20.7x. AEM has a high valuation at 25.8x by Enterprise to EBITDA measures. AEM has a high price to sales ratio at 7.9x.

**Allied Nevada Gold Corp. (NYSEMKT:ANV)** - ANV has a market capitalization of $2,690 million and an enterprise value of $2,347 million showing limited to no financial leverage. ANV shows a trailing P/E ratio of 55.3x which decreases compared to its forward P/E which is 42.6x. ANV has an overpriced valuation at 97x by Enterprise to EBITDA measures. ANV has an exceptionally high price to sales ratio at 23.3x.

**AngloGold Ashanti Ltd. (NYSE:AU)** - AU has a market capitalization of $17,520 million and an enterprise value of $16,874 million showing limited to no financial leverage. AU shows a trailing P/E ratio of 36.9x which decreases compared to its forward P/E which is 11.4x. AU has an acceptable valuation at 19.4x by Enterprise to EBITDA measures. AU has a medium price to sales ratio at 3.2x.

**Aurizon Mines, Ltd. (AZK)** - AZK has a market capitalization of $1,210 million and an enterprise value of $1,077 million showing limited to no financial leverage. AZK shows a trailing P/E ratio of 59.7x which decreases compared to its forward P/E which is 17.9x. AZK has an acceptable valuation at 18.6x by Enterprise to EBITDA measures. AZK has a high price to sales ratio at 7.3x.

**Capital Gold Corporation (CGC-OLD)** - CGC has a market capitalization of $346.48 million and an enterprise value of $337 million showing limited to no financial leverage. CGC shows a trailing P/E ratio of 23.7x which decreases compared to its forward P/E which is 10.9x. CGC has an acceptable valuation at 10.2x by Enterprise to EBITDA measures. CGC has a high price to sales ratio at 5.1x.

**Claude Resources, Inc. (NYSEMKT:CGR)** - CGR has a market capitalization of $347.96 million and an enterprise value of $354 million showing limited to no financial leverage. CGR shows a trailing P/E ratio of 98.1x which decreases compared to its forward P/E which is 18.2x. CGR has a high valuation at 20.1x by Enterprise to EBITDA measures. CGR has a high price to sales ratio at 6.3x.

**El Dorado Gold Corp Ltd. (NYSE:EGO)** - EGO has a market capitalization of $9,540 million and an enterprise value of $9,334 million showing limited to no financial leverage. EGO shows a trailing P/E ratio of 45.6x which decreases compared to its forward P/E which is 24.5x. EGO has a high valuation at 24.1x by Enterprise to EBITDA measures. EGO has a very high price to sales ratio at 12x.

**Fronteer Gold Inc. (FRG)** - FRG has a market capitalization of $2190 million and an enterprise value of $2024 million showing limited to no financial leverage. FRG shows a trailing P/E ratio less than 0 which decreases compared to its forward P/E which is negative. FRG has a negative valuation at -104.4x by Enterprise to EBITDA measures.

**Gold Fields Ltd. (GFI) **- GFI has a market capitalization of $12,210 million and an enterprise value of $12,039 million showing limited to no financial leverage. GFI shows a trailing P/E ratio of 26.7x which decreases compared to its forward P/E which is negative. GFI has a strong valuation at 7.3x by Enterprise to EBITDA measures. GFI has a low price to sales ratio at 2.6x.

**Goldcorp Incorporated (NYSE:GG)** - GG has a market capitalization of $33,170 million and an enterprise value of $33,128 million showing limited to no financial leverage. GG shows a trailing P/E ratio of 25.2x which decreases compared to its forward P/E which is 21.5x. GG has an acceptable valuation at 19.7x by Enterprise to EBITDA measures. GG has a very high price to sales ratio at 10.2x.

**Randgold Resources Limited (NASDAQ:GOLD)** - GOLD has a market capitalization of $7,460 million and an enterprise value of $7,081 million showing limited to no financial leverage. GOLD shows a trailing P/E ratio of 72.4x which decreases compared to its forward P/E which is 14.9x. GOLD has a rich valuation at 41.8x by Enterprise to EBITDA measures. GOLD has a very high price to sales ratio at 15.4x.

**Gammon Gold Inc. (GRS)** - GRS has a market capitalization of $1,290 million and an enterprise value of $1,215 million showing limited to no financial leverage. GRS shows a trailing P/E ratio less than 0 which increases compared to its forward P/E which is 13.1x. GRS has a negative valuation at -944.6x by Enterprise to EBITDA measures. GRS has a high price to sales ratio at 5.5x.

**Golden Star Resources, Ltd. (NYSEMKT:GSS)** - GSS has a market capitalization of $1,050 million and an enterprise value of $866 million showing limited to no financial leverage. GSS shows a trailing P/E ratio of 35.6x which decreases compared to its forward P/E which is 13.1x. GSS has a strong valuation at 6.8x by Enterprise to EBITDA measures. GSS has a low price to sales ratio at 2.4x.

**Iamgold Corporation (NYSE:IAG) **- IAG has a market capitalization of $8,010 million and an enterprise value of $7897 million showing limited to no financial leverage. IAG shows a trailing P/E ratio of 91.9x which decreases compared to its forward P/E which is 15.4x. IAG has a high valuation at 20.6x by Enterprise to EBITDA measures. IAG has a high price to sales ratio at 8.2x.

**Jaguar Mining Inc. (JAG) **- JAG has a market capitalization of $457.44 million and an enterprise value of $535 million showing limited to no financial leverage. JAG shows a trailing P/E ratio less than 0 which increases compared to its forward P/E which is 13.6x. JAG has a high valuation at 26.6x by Enterprise to EBITDA measures. JAG has a low price to sales ratio at 2.8x.

**Kinross Gold Corporation (NYSE:KGC)** - KGC has a market capitalization of $18640 million and an enterprise value of $17715 million showing limited to no financial leverage. KGC shows a trailing P/E ratio of 15x which increases compared to its forward P/E which is 16x. KGC has an acceptable valuation at 14.2x by Enterprise to EBITDA measures. KGC has a medium price to sales ratio at 3.9x.

**Newmont Mining Corporation (NYSE:NEM)** - NEM has a market capitalization of $28840 million and an enterprise value of $29492 million showing limited to no financial leverage. NEM shows a trailing P/E ratio of 14.4x which decreases compared to its forward P/E which is 11.6x. NEM has a strong valuation at 6.5x by Enterprise to EBITDA measures. NEM has a medium price to sales ratio at 3x.

**Northgate Minerals Ltd. (NXG)** - NXG has a market capitalization of $867.42 million and an enterprise value of $704 million showing limited to no financial leverage. NXG shows a trailing P/E ratio less than 0 which increases compared to its forward P/E which is 42.6x. NXG has a strong valuation at 7.7x by Enterprise to EBITDA measures. NXG has a low price to sales ratio at 1.9x.

**Royal Gold, Inc. (NASDAQ:RGLD) **- RGLD has a market capitalization of $2,720 million and an enterprise value of $2,872 million showing limited to no financial leverage. RGLD shows a trailing P/E ratio of 71.4x which decreases compared to its forward P/E which is 27.5x. RGLD has an acceptable valuation at 19.2x by Enterprise to EBITDA measures. RGLD has a very high price to sales ratio at 14.9x.

**Richmont Mines, Inc. (NYSEMKT:RIC)** - RIC has a market capitalization of $158.97 million and an enterprise value of $118 million showing limited to no financial leverage. RIC shows a trailing P/E ratio of 31.1x which decreases compared to its forward P/E which is negative. RIC has an acceptable valuation at 11x by Enterprise to EBITDA measures. RIC has a low price to sales ratio at 2x.

Data in snap shots is sourced from Yahoo!Finance and Zacks.com services downloaded on February 20, 2011.

**Conclusion **Gold stocks continue to offer a way to play rising gold prices. The lower valuation stocks with good scale may offer the best prospects for investors who anticipate rising gold prices.

- The best potential long investments would be NEM, ABX, AU, and GFI based on having good scale and scope of operations in addition to low multiples.
- Smaller companies like JAG and NXG deserve consideration due to their low multiples. NXG would have had the best ranking were it not for its high P/E. Further research into its earnings would provide more insight.
- ANV would be the least desirable long bet based on extremely high multiples.

**Disclosure: **I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.