Key points
- Compound annual EPS growth between the 2017 and 2020 calendar years was 16.7%
- It has a lower forward P/E ratio than a major competitor
- Fears remain about how the escalating military situation in Ukraine may impact the firm
As the situation in Ukraine has deteriorated and turned into a full-blown tragedy, the stock market has fallen. Many companies with Russian links have been hit especially hard. One such example is Polymetal International (LSE: POLY). This is a gold mining business operating in Russia. The fear of sanctions and general market sentiment have caused the share price to fall 72% in the past week. It is down 86% in the past year and currently trades around 220p. Looking at the underlying results, however, I’m wondering if this company’s fall has made it cheap to buy. Should I add more shares to my existing holding? Let’s take a closer look.
Strong results underpin the Polymetal share price
For the 2021 calendar year, the firm stated that revenue had increased 1% year on year. However, net debt had increased to $1.6bn from $1.3bn the previous year. Furthermore, it will soon leave the FTSE 100.
Over a longer period, the business registers strong earnings growth. Between the 2017 and 2021 calendar years, earnings-per-share (EPS) increased from ¢88 to ¢191. By my calculations, this results in a compound annual EPS growth rate of 16.7%. As a current shareholder, I view this as strong and consistent.
Is it cheap?
By using the price-to-earnings (P/E) ratio, I am better able to understand if the Polymetal share price is cheap or not. Currently, it has a forward P/E ratio of 7.25, based on forecast earnings. Major competitor Petropavlovsk has a forward P/E ratio of 41.49. This may indicate that Polymetal is undervalued at current levels. It should be noted, however, that the recent sell-off of both these companies may detract from the precision and usefulness of the P/E ratio.
Fears are also growing that firms like Polymetal may face sanctions from Western governments. In this scenario, it may be difficult for the company to conduct simple business. For example, it may have trouble selling the gold it produces. Alternatively, a ceasefire may be declared and military action may end soon thereafter. Not only would this be welcome news for people in Ukraine, Russia and the rest of the world, it may also be good for the Polymetal share price.
Furthermore, the company is working to enhance its long-term production capabilities. For instance, it recently approved an almost-$0.5bn investment in its Veduga project in Southern Russia. This is estimated to yield 200,000 ounces of gold for 21 years. I see this as a very positive move.
Although the Polymetal share price has recently fallen after a massive sell-off, I remain optimistic in the long term. It is a business with consistently strong results. While I won’t be purchasing more shares today, I won’t rule this out in the near future.
