Up 226% and still undervalued? Investors can’t get enough of this soaring UK growth stock!
When it comes to growth stocks, high price tags often come with the territory. Rapidly expanding companies usually command inflated valuation metrics, where the promise of future earnings drives the price far above what current profits justify.
But now and again, a company delivers strong growth and trades on modest metrics — and thatâs what Iâve found this week.
An unstoppable growth stock?
Less than a year ago, I wrote about Serabi Gold (LSE: SRB) as one of several promising penny stocks. Back then, the shares were trading for less than £1. So when I saw the current price of 262p, my initial reaction was that it must now be vastly overvalued.
But I couldnât have been more wrong.
Over the past 12 months, Serabiâs share price has surged 226%, lifting its market-cap to nearly £200m. The small-cap miner, which focuses on gold production in Brazilâs Tapajós region, has been riding a wave of optimism fuelled by record gold prices and consistent production upgrades.
The companyâs Palito and Coringa mines have both reported higher-than-expected output, pushing earnings sharply higher and turning Serabi into one of the FTSEâs most talked-about success stories.
Still cheap
Despite the blistering rally, Serabi Gold doesnât look anywhere near as expensive as many high-growth peers. When I checked its valuation metrics, I expected to find the usual hallmarks of an overhyped stock â a price-to-earnings (P/E) ratio in the 50s or a price-to-book (P/B) ratio four times the share price.
Instead, what I found genuinely surprised me. The stock trades at a forward P/E ratio of just 5.74 and a P/B ratio of 2. Those are figures more commonly associated with mature, slow-growing businesses — not a company thatâs tripled in value over the past year.
The key driver here, of course, is the soaring gold price.
With global uncertainty still dominating headlines, investors have flocked to gold as a safe-haven asset. That demand has pushed prices to multi-year highs, and miners like Serabi have reaped the benefits. As a result, analysts expect the companyâs earnings to continue climbing in tandem with the metalâs value.
Risks
Of course, forecasts are just that â forecasts. They can shift quickly with changes in the global economic or political landscape. If sentiment swings back towards riskier assets, the gold price could retreat, taking mining shares down with it.
There are also operational risks to consider. Any disruption at Serabiâs mines, or a downturn in output, could weigh heavily on profits.
The stock even took a sharp dip earlier this week after reports of potential progress toward a Gaza ceasefire briefly softened gold demand.
Final thoughts
Serabi Gold’s quickly establishing itself as a serious player in the UK-listed gold sector. After such a rapid ascent, itâs natural to wonder if investors have missed the best gains.
But based on current earnings forecasts and valuation ratios, I think there could still be room for long-term growth.
For those willing to tolerate some volatility, this looks like a gold stock worth considering. Just remember that when the gold market sneezes, miners tend to catch a cold — so timing and patience are everything.
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Mark Hartley has no position in any of the shares mentioned. 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.
