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Sandstorm Gold: A Solid Play for the Gold Bull Market

The gold stream and royalty operator should deliver bottom-line growth as gold prices rise

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Alberto Abaterusso
Sep 14, 2021

Summary

  • Low yields on bonds will likely trigger higher gold prices, resulting in higher margin transactions among Sandstorm Gold's portfolio of streams and royalties
  • Thanks to a strong portfolio of more than 200 streams and royalties located across 5 continents, Sandstorm Gold recently beat estimates on second-quarter revenue by $5 million
  • Wall Street forecasts that Sandstorm Gold will outperform the overall market
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Recently, both the U.S. Federal Reserve and the European Central Bank decided to maintain base interest rates close to zero because they believe that the economy still needs support.

Furthermore, they added that tighter monetary policy would hamper economic recovery. While many analysts are still convinced that an increase in rates would be an appropriate response at this phase of the cycle in order to reduce the impact of inflation on the costs of essentials, these central banks believe that allowing for higher debt levels is a better solution than limiting inflation for the time being.

When interest rates are low, investors usually flock to gold, as the precious metal works as a safe haven asset, offsetting poor yields on bonds and other income securities. Thus, gold is expected to finish the year higher, recovering from the three-week low of $1,790 an ounce.

Given the expected increase in gold prices, investors may want to consider buying shares of Sandstorm Gold Ltd (

SAND, Financial), as this operator of gold streams and royalties is poised to deliver strong growth.

Thanks to its portfolio of more than 200 streams and royalties which are located across the Americas, Sweden, Mongolia, Turkey, Egypt, several countries in Africa and Australia, Sandstorm Gold generated a net income of $8.6 million in the second quarter of 2021 on revenue of $26.4 million. The revenue grew 41.2% year over year, topping projections by nearly $5 million thanks to higher yellow metal prices and attributable production of gold equivalent.

In the second quarter of 2021, Sandstorm Gold had rights on 18,004 ounces of gold equivalent, which were received in exchange for upfront financing to mining companies, while in the same quarter of the year before, it had rights on a lower volume of 10,920 ounces.

The balance sheet had nearly $46 million available in cash on hand and equivalents as of the end of the quarter. The company will use the cash to support stream and royalty activities which are expected to generate rights on 62,000 to 69,000 ounces of gold equivalent in 2021. Regarding its long-term guidance, Sandstorm Gold believes that its portfolio is on track to deliver more than 125,000 ounces of gold equivalent in stream agreements and royalties in about four years’ time.

If the precious metal prices stay supportive, these expectations of higher ounces from future gold streams and royalties should provide a strong catalyst that could produce a significant increase in the share price trend following the stock's year-to-date drop of nearly 16%. The stock price closed at $6.44 per share on Monday for a market capitalization of $1.26 billion. The 52-week range is $5.96 to $9.67.

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Furthermore, the enterprise value-to-Ebitda ratio is 14.11 versus the industry median of 9.49 and the enterprise value-to-revenue ratio is 10.97 versus the industry median of 2.32.

The stock doesn’t look expensive as the share price is currently trading below the 50-Day Moving Average of $6.84 and below the 200-Day Moving Average of $7.49.

Currently, Sandstorm Gold Ltd does not pay dividends.

The 14-day relative strength index is 44, which means that the stock is neither overbought nor oversold.

Wall Street recommends a median rating of overweight for the stock with an average target price of $9.97, reflecting a 56% upside from Monday’s closing price.

Disclosure: I have no positions in any securities mentioned.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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