Silver (SIN24) is a precious metal that's also used in several industrial applications. For instance, it is the best thermal and electrical conductor among metals, which makes it an attractive component for electrical applications. In fact, more than 50% of silver demand comes from industries across multiple sectors.
Similar to gold (GCQ24), silver is also viewed as a hedge against inflation and a store of value. Moreover, the safe-haven metal can be used to diversify your portfolio, as it thrives amid economic downturns.
One way to gain exposure to silver is by investing in mining companies, such as Fortuna Silver Mines (FSM). Valued at $1.6 billion by market cap, Fortuna Silver Mines stock has rallied 28.7% year-to-date, and is up 42.8% in the last 12 months.
Despite these outsized gains, FSM stock trades 21.8% below its 52-week high, allowing you to buy the dip. Let’s see if you should invest in this silver mining stock right now.
UBS is Bullish on Silver
Investment bank UBS is bullish on silver, and raised its price forecast to $36/oz for 2024, which is 20% higher than its previous estimate.
UBS explained, “Our new silver price expectations reflect outperformance relative to gold, and show the gold:silver ratio falling towards the long-term average, which is currently ~68.” The brokerage added, “We think silver is well positioned to do well on a relative basis in an environment where gold prices are rising, the Fed is expected to ease policy, and market supply and demand fundamentals are tightening.”
According to UBS, rising industrial demand tied to solar energy is growing significantly, with silver demand from the solar energy space up by 40% in 2023. And earlier this year, the Silver Institute released a report estimating global silver demand to touch 1.2 billion ounces this year, its second-highest level on record.
Is Fortuna Silver a Good Stock to Buy?
Fortuna Silver is engaged in precious and base metal mining in Argentina, Burkina Faso, Mexico, and Peru. It explores for silver, lead, zinc, and gold.
FSM reported revenue of $225 million in Q1 of 2024, with gold contributing 81% to its top line, followed by silver at 10%. It realized an average gold price of $2,097 per ounce in Q1, up from $1,990 in Q4 of 2023, while silver prices stayed flat at $23. The company reported a net income of $26 million, or $0.09 per share, with operating cash flow at $84 million, or $0.28 per share.
Fortuna Silver reduced its net debt by $83 million, ending the quarter with a net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) of just 0.221x. Its liquidity position stood at $212 million, and the company raised a convertible note offering of $150 million last week.
Out of the five analysts tracking FSM stock, two recommend “strong buy” and three recommend “hold.”
Armed with expanding margins and a strong balance sheet, Fortuna Silver is forecast to report adjusted earnings of $0.39 per share in 2024, indicating a reasonable forward earnings multiple of 13.6x. The average target price for FSM stock is $6.14, implying expected upside of 23.5% from the current trading price.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
