Saturday, October 22, 2016
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
14,432 Blog Posts

A Friendly Update on the Matter of Silver

Have a look at the recent track record of AG’s earnings disasters.


The company has missed earnings expectations for 5 of the past 6 quarters with one meet. At the same time, both earnings and revenues are going in the opposite direction, valuation remains rich. Tell me why?



There isn’t any growth to speak of at AG, so why does it deserve such a rich price to sales ration, at a staggering 8x sales. A fine company like PAAS, one that has good free cash flow, is stuck at under 3x, alongside GPL, FSM, EXK and HL (4.3X). I want to be educated here and understand why AG should trade at more triple the sales of PAAS?

Is the the low FPE ratio? Perhaps.

But how reliable is the “E” in “PE” when the company misses by a football field almost every quarter?

With the raw commodity in the penalty box and miners in full liquidation mode by long term faithful investors, I sense much lower prices are in order for AG–perhaps down to $12.

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  1. Joe

    I like this pair trade (long PAAS short AG) but going to wait for a better level to enter in.

    Also you’ll collect a 3% div on it as well as AG pays nothing and PAAS pays 3%

  2. Juice

    you are absolutely correct on AG

    nice job

  3. Vertigo

    This may be a “friendly” update but the price action on the miners is decidedly unfriendly. Downright hostile.

  4. drbigboss

    as I’m sure you know, mining and resource companies don’t trade on multiples of earnings. They typically trade on a $/oz value. Imagine a mining company that owns the largest silver mine in the world but only is currently producing $1,000 in revenue. Obviously this stock would not be useful if valued on a multiple of revenue since that valuation would exclude the value of their asset. I know nothing about AG but I’d imagine they have more resources in the ground or they’re expected to grow production more quickly.

    • Rhino

      The correlation is def not perfect dude. Check it out vs SLV,AG

      • drbigboss

        I’m not referencing a SLV correlation though. I’m just mentioning that valuing miners based on P/E or some other income statement metric ignores both the future potential value of their asset along with the fact that they’re inherently melting ice cubes.

        Imagine two miners. One generating $1m in annual cash flow with a small mine that will only last 2 years. Then imagine another miner generating $100k in annual cash flow but a huge mine that will last 1000 years.

        All I’m saying is that you can’t value a mining company based on the income statement because resource companies aren’t real businesses in the traditional sense of the word.

  5. Mr. Cain Thaler

    Alright, is this getting overextended, or do you all think we go higher from here?

  6. Vertigo

    Furthermore, this is less a “friendly” update than a not-so-subtle dig at anyone foolish to be long these POS miners.

  7. drbigboss

    “buy when there is blood in the streets”

  8. mad_scientist

    The Gold Trade is dead. Therefore, Silver is dead.

    No reason to buy any of it for a few years. Been a nice decade-long run but has to digest now.