Is Wheaton Precious Metals A Buy After “Record Quarter”

Back In September I showed you 3 Reasons To Buy Wheaton Precious Metals to protect your retirement portfolio…

Today, I answer the question – Is Wheaton Precious Metals A Buy After “Record Quarter?”

Below is a brief recap of what I said in September about buying its stock.  If you want to read the previous article in full, use the link above.

3 Reasons To Buy Wheaton Precious Metals

Wheaton is based in Vancouver British Columbia Canada.  It has a $22.2 billion market cap.  And it also pays a 0.8% dividend.

This is reason #1 to buy Wheaton Precious Metals to Depression Proof Your Portfolio.

Wheaton’s 0.8% Dividend

Over the last decade Wheaton’s paid out a total of $2.70 per share in dividends.

At today’s share count of 449 million shares that’s equal to $1.2 billion paid out to shareholders in the last decade.

Plus, it also grew its dividend 111% from $0.18 per share in 2010 to $0.38 per share now.  This is an annual dividend growth rate of 11.1% per year.

It can keep growing the dividend because it earns huge profits and cash flows.  Which is reason #2 to buy Wheaton to Depression Proof Your Portfolio.

Wheaton Earns Huge Profits

Over the last decade it earned an average operating income margin of 47.5% per year.

I look for anything above 10% on a consistent basis so Wheaton surpasses this number.

Why 10%?

This makes Wheaton a great operating business.

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its negative 25.1% per year on average.

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.

Why am I telling you about this when its so negative?  Because it’s also not the full story.

In the last decade Wheaton had 4 huge negative years when it comes to FCF/Sales margin…  2013, 2015, 2016, and 2018.

Gold hit a previous high of $1,788 per ounce in August 2011.  Then prices fell until 2016.  And then they stayed stagnant until late 2019 when they began rising again to today’s level of $1,916 per ounce as of this writing.

The same trend happened with silver during this time too…

With streaming companies when precious metals prices rise it’s good for them… Things are even okay when metal prices are stagnant.

But when prices fall it’s bad for these companies.

This leads to “lumpy” free cash flow production… But lumpy isn’t necessarily bad.  It just means things will bounce around more than other stocks.

Over time though this evens out, and they still earn large profits as you saw above with operating profits.

If you strip out the bad years in terms of its FCF/Sales margin Wheaton earned an average 46.7% FCF/Sales margin in the 6 good years.

Plus, they also allow Wheaton to have low debt which is reason #3 to buy its stock.

Wheaton Has Low Debt

As of this writing its debt to equity ratio is 0.12.

And its total liabilities as a percentage of its balance sheet is only 11.7%.

I look to buy companies that have a debt to equity below 1.

Why?

Because the lower debt levels the company has, the lower chance it has of going bankrupt.  And this makes it a safer investment.

Due to Wheaton’s continued fantastic operating profits and low expense business model, it has ultra-low debt levels.  And these things combined make it an ultra-safe stock.

But what about its valuation?  Is it cheap? 

Wheaton IS NOT Cheap

With the markets at or near all-time highs you’d expect a fantastic stock like Wheaton Precious Metals to be selling at an enormous valuation.

And unfortunately, it is.

As of this writing its P/E is 62.8.

Its P/CF is 36.8.

And its forward P/E is 33.6.

On all three metrics I look to buy investments below 20 to consider them undervalued.

This shows Wheaton is overvalued by a large amount now.

And this means investing in its stock today gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning its stock in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning its stock going forward.

With Wheaton being overvalued, it makes the investment riskier which is why you should wait to buy its stock until it’s cheaper.

Conclusion

If you’re looking for a solid, safe, stable, dividend paying, cheap, and enormously profitable investment to Depression Proof Your Portfolio – consider investing in Wheaton Precious Metals. But only when it’s cheaper.

***

This thesis to buy Wheaton – when it’s cheaper – continued playing out after it released its most up to date quarterly earnings on November 9th, 2020.

Wheaton announced “record” numbers in the quarter.

  • Operating cash flow rose 60% in the year to year quarterly period to $228 million.
  • Revenues rose 37.4% in the year to year quarterly period to $307.3 million.
  • Earnings per share rose 96.5% in the year to year quarterly period to $0.334 per share.
  • Its net debt levels fell by almost half.
  • And its cash levels more than doubled.

These fantastic results led the company to increase its quarterly dividend by 20% to $0.12 per share next quarter.

These are fantastic results for the company.  And continue to prove out why I recommend you buy it in September – when it’s cheaper.

So, with all this great news, is Wheaton cheap enough to buy now?

Unfortunately, no.

As of this writing its P/E is 47.8.

Its P/CF is 39.6.

And its forward P/E is 29.1.

Meaning its still overvalued… And offering you a lower margin of safety, more risk, and lower potential investment returns going forward.

For this reason, I recommend you continue being patient and wait to buy Wheaton Precious Metals when it’s cheaper.

Click here to see some of the stocks we recommend to Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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