ASA Gold and Precious Metals (ASA) is in the spotlight after Axel Merk urged the Securities and Exchange Commission to review recent board decisions that shifted portfolio management from Merk Investments to an internal, Saba affiliated investment committee.

That governance fight is unfolding against a mixed backdrop for ASA Gold and Precious Metals, with the share price at $54.48 after a 1 day share price return of 4.03%, a 30 day share price return that declined 13.58%, and a 1 year total shareholder return of 69.83% that points to strong longer term momentum.

If this governance shake up has you looking more widely across the sector, it could be a useful time to scan other precious metal opportunities using our screener of 33 elite gold producer stocks

With ASA Gold and Precious Metals posting a long run of strong total returns yet trading with an estimated intrinsic premium of about 25%, the real question is whether there is still upside on the table or whether the market is already pricing in future growth.

Price-to-Earnings of 1.5x: Is it justified?

ASA Gold and Precious Metals currently trades on a very low P/E of 1.5x, which stands in sharp contrast to the recent share price strength and the estimated 25% premium to the SWS DCF fair value of $43.70.

The P/E ratio compares the current share price to earnings per share and is often used for closed end funds and capital markets companies because it directly links what you pay to the recent earnings power being reported. For ASA Gold and Precious Metals, that 1.5x figure sits against a US Capital Markets industry average of 40x and a peer average of 18.1x, so the market is currently paying far less for each dollar of ASA earnings than for many similar stocks.

However, the picture is complicated by the very large one off gain of $667.1m in the last 12 months, which has inflated earnings and pushed the reported P/E sharply lower, so investors need to judge how much of that profit is repeatable. Even with that caveat, earnings growth over the past year was very large and also well ahead of the Capital Markets industry, while over five years earnings growth has averaged 41.2% per year, which helps explain why return on equity stands at an outstanding 60.4%.

Compared with the US Capital Markets industry average P/E of 40x and the peer average of 18.1x, ASA Gold and Precious Metals sits at a steep discount, implying the market is pricing in a much less generous earnings outlook or treating the recent spike in profits as temporary. That gap is sizable and gives you a clear reference point when weighing the recent governance changes, the new board and management team, and whether ASA Gold and Precious Metals should trade closer to sector norms over time.

Result: Price-to-Earnings of 1.5x (UNDERVALUED)

However, ASA Gold and Precious Metals still faces governance uncertainty related to the Saba affiliated committee, as well as the risk that its recent earnings power may be difficult to repeat.

Another view on ASA Gold and Precious Metals using our DCF model

The low 1.5x P/E ratio presents ASA Gold and Precious Metals as inexpensive, but the SWS DCF model suggests otherwise. The model estimates a fair value of $43.70 compared with the current $54.48 share price, indicating the stock is trading at a premium rather than a discount. So which signal appears more reliable?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out ASA Gold and Precious Metals for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 43 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Seeing both optimism and concern around ASA Gold and Precious Metals, it makes sense to review the numbers yourself and decide where you stand. To weigh up the potential upside against the issues investors are watching, start with the 2 key rewards and 2 important warning signs.

Looking for more ideas beyond ASA Gold and Precious Metals?

If this latest ASA Gold and Precious Metals update has sharpened your focus, it is a good moment to broaden your watchlist with a few targeted stock ideas.

• Target dependable income by scanning companies that have paid-up balance sheets and robust cash flows using the 7 dividend fortresses.
• Spot potential opportunities early by reviewing companies that currently look mispriced on quality and valuation through the 43 high quality undervalued stocks.
• Zero in on financial strength by filtering for companies with resilient finances using the solid balance sheet and fundamentals stocks screener (46 results).

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.