Sandstorm Gold: Share Buyback Drives Strong Momentum
Summary
- Sandstorm outperformed all of its rivals with a 50% return since November.
- The company announced a share buyback program on November 15, 2018. I think that this event alone has changed the market sentiment about Sandstorm.
- The latest royalty acquisition added a near-term cash producing asset, increasing the company's net asset value with no dilution to the shareholders.
In the last weeks, gold price went up ~8% and all the royalty companies - but one - had positive returns. In this period, Sandstorm outperformed all of its rivals.
Data by YCharts
In this article I will focus on the reasons behind the strong momentum in Sandstorm's stock price and I'll justify why I think that the company is still undervalued, offering a 30.7% upside potential for 2019 and a 117% for 2023.
Latest News
Let's check the last announcements of Sandstorm.
- November 15, 2018, share buyback program announcement.
- December 6, 2018, credit facility increased from $150 million to $225 million.
- January 4, 2019, the company reported record gold sales for the fiscal year 2018, in the middle range of its guidance.
- January 18, 2019, 0.9% NSR royalty acquisition in the 'Fruta del Norte' mine.
I think that is relevant to check the daily return for each of these announcements:
| Date | Sandstorm Gold Return | Gold Price Return | Relative Return |
| Nov. 15, 2018 | +5.4% | +0.3% | +5.1% |
| Dec. 6, 2018 | -0.2% | -0.1% | -0.1% |
| Jan. 4, 2019 | +0.4% | -0.7% | +1.1% |
| Jan. 18, 2019 | -0.8% | +0.2% | -0.6% |
Source: Author using data from Investing and PMbull.com
So, the stronger short-term catalyst seemed to be the share buyback announcement with a +5.1% relative return versus the gold price. That's why I think that the market sentiment about Sandstorm has changed, after several years of negativity and skepticism.
The return in January 4, 2019 was also relevant, when the company reported record gold sales for the fiscal year 2018. Sandstorm's shares relative return was +1.1%.
Sandstorm's stock price also outperformed the gold price (GLD), VanEck Vectors Gold Miners ETF (GDX) and Junior Gold Miners ETFs (GDXJ).
Data by YCharts
Strong Momentum
Let's take a look at the momentum tabs on SeekingAlpha. In the first one, Sandstorm is clearly above all its moving averages:
Source: SeekingAlpha
Regarding the 14-day Relative Strength, is also historically high.
Source: SeekingAlpha
Compared to its peers, Sandstorm also beats its rivals.
Source: SeekingAlpha
Osisko Gold (OR) and Wheaton Precious Metals (WPM) are also performing well. I think that the following announcements could be the reasons of the strong momentum:
- December 13, 2018. Wheaton PM announced a settlement on a Canadian tax dispute with the Canada Revenue Agency.
- January 7, 2019. Osisko Gold recently reported a initial C$10 million investment in its share buyback program and has repaid $43 million on its revolving credit facility
Taking a different point of view, we can see a multiple expansion for the entire royalty group during the last weeks.
Data by YCharts
According to this graph, the Sandstorm's Price to Cash Flow per share ratio (TTM) went up from ~15x in November to the current 22x.
Target Price
These are my current estimates, using Sandstorm's closing share price as of February 1, 2019.
Source: Author using company filings and his own estimates.
In my previous article about Sandstorm I estimated a 55.6% return for 2019. Now, the upside is lower but I think that the company is still undervalued, offering a 30.7% upside potential for 2019 and a 117% for 2023, if Hod Maden comes online during 2021 or 2022.
Source: Author using his own estimates.
Conclusion
The entire gold sector is enjoying a strong momentum thanks to the gold price appreciation of the last months.
Sandstorm Gold is leading the royalty group returns, but this strong momentum won't last forever. I think that would be reasonable to wait for a pullback in the gold price or a weaker momentum before buying shares of the mentioned companies.
Ignoring momentum indicators and taking a long-term view, I believe that Sandstorm is still undervalued, offering wide upside potential for the next years. That's why I didn't sell a single share from my Sandstorm's position.
Don't forget to draw your own conclusions.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
This article was written by
Analyst’s Disclosure: I am/we are long SAND. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
This article does not represent any kind of investment recommendation or advice.
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