This Is a Terrific Gold Stock at an Attractive Valuation

Kirkland Lake Gold (KL.TO) has been in great form on the stock market this year, gaining close to 75% on the back of a solid financial performance that has been backed by improving gold prices. But if you have been staying on the sidelines so far, you can still get into Kirkland Lake Gold stock because of two reasons – its valuation and catalysts.

Kirkland Gold has an attractive valuation

Kirkland Lake Gold remains attractively valued even after its terrific rise this year. It has a price-to-earnings ratio of 26, which is lower than the five-year average multiple of 35. The forward price-to-earnings ratio of 19.5 shows that Kirkland Lake Gold’s bottom-line performance is expected to improve in the future.

In fact, analysts estimate that the company will grow its earnings to $2.39 per share in the current fiscal year, up from $1.36 per share in 2018. Next year, Kirkland Lake Gold’s earnings are expected to jump to $2.68 per share.

So, it makes sense for investors to go long the stock right now not only because it trades at attractive levels, but also because it has the means to deliver the improvements that analysts are expecting.

Expect a stronger performance

Kirkland Lake Gold exited the second quarter of 2019 with revenue growth of 31%, driven by an increase in gold sales to more than 212,000 ounces as compared to 164,000 ounces in the year-ago period. Moreover, the company’s costs were down and it is on track to deliver a million ounces of gold this year. The combination of this higher output and lower costs will allow the company to benefit from an improved gold pricing scenario.

The reason why Kirkland Lake Gold has been able to achieve higher production and lower its cost base simultaneously is because of its Fosterville mine in Australia. Bloomberg reports:

“I’ve never seen anything like it in all my life — it’s like finding a safe underground,” David Baker, managing partner of gold investor Baker Steel Capital Managers LLP, and a visitor to mines for more than 30 years, said following a tour last month of Kirkland Lake Gold Ltd.’s Fosterville mine, the flagship for the region’s revival. “You don’t get better than that unless you can dig into Fort Knox.”

The Bloomberg report also adds that the reserve grade at Fosterville was originally at 5 grams per ton, but it shot up to 31 grams per ton at the end of last year. This massive increase in Fosterville’s grades has been a big tailwind for Kirkland Lake Gold, allowing the company to increase its production at a lower cost.

As such, it won’t be surprising to see Kirkland Lake Gold get better in the coming days and benefit from further improvement in the price of gold. This is why investors should continue holding the stock and not book profits because of more upside potential.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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