By Sean Williams
The stock market has been taken for a wild ride in 2016, but volatility is nothing new for longtime investors. The year began with the worst two-week decline ever recorded, and it was followed by the most voracious intra-quarter rally we've seen since 1933. More recently, all three major indexes have thrusted to new all-time highs.
While many investors have been given a case of indigestion in 2016, precious metal investors have been too busy sitting back and sipping on champagne to notice. Even following what's been a rough week for the latter after hawkish Fed commentary, 17 of 22 gold miners with a market cap of $300 million or higher are up at least 100% year to date through Aug. 25, and all six silver miners with a $300 million market valuation or higher have risen by at least 117% year to date.
Yet, here's what's really intriguing: Despite these huge gains, many gold and silver stocks still appear to be exceptionally undervalued relative to the S&P 500 (SNPINDEX:^GSPC). How? Look no further than the price-to-cash flow per share ratio.
Gold and silver stocks look cheap based on this metric
Cash flow is of critical importance to all businesses, and to investors who are hoping to evaluate a company or set of companies. Investors obviously want to see a company generate positive cash flow from its operations, since positive cash flow is what allows for a company to reinvest in itself, make acquisitions, reward shareholders via dividends and stock buybacks, and in the simplest of cases to keep the lights. The more positive cash flow a company has, presumably the more financial flexibility it has as well. Thus, the cheaper a company is valued relative to its cash flow on a per basis, the more undervalued it may be.