Polymetal shares have a P/E of just 1.6! Here’s what I’m doing!

Polymetal shares have fallen significantly this year following Russia’s invasion of Ukraine. So is this stock starting to look like good value?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Polymetal (LSE:POLY) shares collapsed earlier this year after many Western countries introduced sanctions on Russia and Russian businesses. The London-listed gold miner wasn’t sanctioned, but investors have become wary amid concerns it may struggle to fund its operations and sell its products.

Right now, based on the previous year’s data, Polymetal has a price-to-earnings ratio of just 1.6. That’s incredibly low.  In most cases I’d say that’s astoundingly cheap, or most probably, that something must be wrong. The figure reflects the fact that the stock is currently valued at £1.18bn while the company made $1.16bn in pre-tax profit for the year ending December 31. So, what’s behind the low P/E ratio and should I buy?

Why is the P/E so low

Investors are obviously concerned about the company’s capacity to carry on operating. Polymetal has highlighted uncertainty around funding as a result of sanctions placed on Russian banks and the state as a whole. Balance sheet constraints have exacerbated funding issues. 

Moreover, as Russia becomes more isolated, Polymetal may find it hard to sell its gold and other products. In April, Russian miner Petropavlovsk said it had seen sales fall after its main customer, Gazprombank, was placed on a European sanctions list. 

If the war in Ukraine escalates, there’s also the very real risk that the miner could be sanctioned too.

Polymetal has also announced that it will be postponing its dividend payments for the foreseeable future. Chairman Riccardo Orcel said the decision was made to sustain the stability and liquidity of the business.

What’s the upside?

I still see quite a lot of upside here. Firstly, the miner said it still expects to produce 1.7m ounces in 2022 — a figure similar to 2021. Q1 data was positive too. Despite a fall in production, revenue for the three months to March 31 rose 4% year-on-year to $616m. This was driven by higher prices. Production was only down 6%, which I don’t think is too much to be worried about. It may well be the case that the fall in production wasn’t a result of the geopolitical situation. Petropavlovsk actually announced that production had increased despite the war.

If operations continue relatively uninterrupted, Polymetal will remain a top-10 global gold producer and top-five global silver producer. It has an attractive portfolio of assets located across Russia and Kazakhstan. These assets, which should be very profitable right now, are expected to yield high long-term returns. 

One for my portfolio?

I actually owned Polymetal before the war, which probably would have worked out for me as mining stocks have done very well this year. However, the war started and the value of my holdings crashed. I’ve been keeping a very close eye on this one and recently decided to double my holdings. I’ve seen enough data to suggest the firm can continue operating profitably. Yes, there certainly are risks as detailed above, but I decided it was a risk worth taking.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox owns shares in Polymetal International. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Would a stock market crash matter?

Christopher Ruane explains why a stock market crash could turn out to be positive, not negative, for a private investor…

Read more »

Investing Articles

Has the Rolls-Royce share price peaked?

After a strong 2023 performance and (so far) in 2024, the Rolls-Royce share price has stuttered in recent days. Christopher…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Turning a £20k ISA into a £13,900 yearly second income? It’s possible!

By investing a £20k ISA now using certain basic principles, our writer thinks he could set up a second income…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With no savings, I’d follow Warren Buffett’s number one rule to build wealth

Can this one piece of Warren Buffett wisdom really help our writer as he aims to build wealth in the…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

A second income of £1k a month from just £10 a day! How would I do that?

Mark David Hartley considers how to build a second income stream starting from just £10 a day. Is £1,000 a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Turn £8,900 into a £24k annual passive income? Here’s how!

Christopher Ruane applies some investing lessons from billionaire Warren Buffett when explaining how he'd aim to earn sizeable passive income…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »