What is AR.TO's Intrinsic value?

Argonaut Gold Inc (AR.TO) Intrinsic Value Analysis

Executive Summary

As of May 27, 2025, Argonaut Gold Inc's estimated intrinsic value ranges from $0.03 to $0.38 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $0.03 -94.1%
Discounted Cash Flow (5Y) $0.38 -27.5%
Dividend Discount Model (Multi-Stage) $0.32 -38.1%

Is Argonaut Gold Inc (AR.TO) undervalued or overvalued?

With the current market price at $0.52, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Argonaut Gold Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.2% 3.7%
Equity market risk premium 5.1% 6.1%
Adjusted beta 1.21 1.34
Cost of equity 9.3% 12.3%
Cost of debt 7.0% 12.5%
Tax rate 28.3% 38.2%
Debt/Equity ratio 0.67 0.67
After-tax WACC 7.6% 10.5%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 9.0% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $372 (FY12-2023) to $634 (FY12-2033)
  • Net profit margin expansion from 10% to 10%
  • Capital expenditures maintained at approximately 50% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $0 $658M 71.8%
10-Year Growth $0 $338M 31.5%
5-Year EBITDA $1 $1,294M 85.7%
10-Year EBITDA $1 $1,101M 79.0%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.8%
  • Long-term growth rate: 2.0%
  • Fair value: $0.32 (-38.1% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 12.3% (Low) to 9.3% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $(2) to $(4)
  • Selected fair value: $-3.77 (-825.0% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $660M
Enterprise Value $1085M
Trailing P/E 0.00
Forward P/E 18.08
Trailing EV/EBITDA 5.65
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.67

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 40% $0.01
Discounted Cash Flow (5Y) 33% $0.09
Dividend Discount Model (Multi-Stage) 27% $0.06
Weighted Average 100% $0.22

Investment Conclusion

Based on our comprehensive valuation analysis, Argonaut Gold Inc's weighted average intrinsic value is $0.22, which is approximately 57.0% below the current market price of $0.52.

Key investment considerations:

  • Strong projected earnings growth (10% to 10% margin)
  • Consistent cash flow generation

Given these factors, we believe Argonaut Gold Inc is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.