Precious metals have been a store of value for over 6,000 years and have historically provided an effective hedge against inflation. These highly regarded assets are often referred to as “safe haven” investments for this precise reason.
Moreover, the global precious metals market size is expected to gain momentum in the next decade, reaching $403.08b by 2028 up from $275.40b in 2021. This momentum translates into a CAGR of 5.6%. This increase in the CAGR is attributable to the increase in demand to pre-pandemic levels as the virus wanes.
As the current economic climate makes precious metals investing more attractive, we will have a look at two companies in the industry to see which is the better investment in the long run: Royal Gold (RGLD) and Barrick Gold (GOLD).
Royal Gold (RGLD)
RGLD is a precious metals company that engages in the acquisition and management of precious metal streams, royalties, and similar production-based interests. It owns interests on approximately 187 properties on five continents, including interests in 41 producing mines and 17 development stage projects. Its portfolio includes principal, producing and development properties, as well as evaluation and exploration stage properties.
Since the beginning of the year, RGLD advanced slightly, up 3.89%, outperforming its complex and the SPDR Gold Shares benchmark (GLD), which declined 5.97% year-to-date.
In terms of financials, the precious metal company’s net sales advanced vigorously in 2021, up 23.4% year-on-year to $616m. Moreover, the company’s net-sales forecast for 2022 is expected to accelerate to $698m, up 13.3%. RGLD’s net-income growth is anticipated to increase by 4.6% year-on-year to $317m in 2022, corresponding to a huge net margin of 45.5%.
RGLD’s balance sheet remains healthy, as the company managed to increase its net cash position consistently in past years. The company should post a net cash position of $226m in 2021 and should lift it more than 2x in 2022 to $557m. This precious metals company continues to invest in order to sustain its growth prospects, posting a comfortable CAPEX/Sales above 30%.
RGLD’s valuation metrics are evolving in line with its peers. The company is currently trading at a 2022e P/E ratio of 23.3x and a 2022e EV/EBITDA of 12.7x.