Is Now the Time to Buy Randgold Resources?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 (UKX) and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Randgold Resources  (LSE: RRS  ) (NASDAQ: GOLD  ) to determine whether you should consider buying the shares at 6,200 pence.

I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look like a good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-year EPS Growth

Projected P/E

PEG

Yield

3-year Dividend Growth

Dividend Cover

Randgold Resources

6,200p

470%

19.5

1

0.6%

135%

10.7

The consensus analyst estimate for this year's earnings per share is $5.10 (up 19%) and dividend per share is $0.50 (up 25%).

Trading on a projected P/E of 19.5, Randgold appears significantly more expensive than its peers in the mining sector, who are currently trading on an average P/E of around 6. That said, Randgold's sky-high P/E and high growth rate give a PEG ratio of around 1, which implies the share is fairly priced for the near-term earnings growth the firm is expected to produce.

Offering a 0.6% yield, the dividend is significantly less than the mining sector average of 2.7%. However, Randgold has a three-year compounded dividend growth rate of 135%, implying the payout could soon catch up and overtake that of the company's peers.

Indeed, the dividend is more than 10 times covered, giving Randgold room for huge payout growth.

Strong historic growth, but is Randgold expensive?
I believe Randgold is not currently expensive. Although Randgold's projected P/E is significantly higher than the sector average, Randgold's PEG ratio does highlight the strong near-term growth the firm is expected to produce. I believe this potential justifies the high P/E.

Indeed, one of the best-performing shares over the past decade has been Randgold. Trading down at 400 pence during 2004, Randgold shares have since seen a gain of 1,460%. The performance has been down to Randgold's explosive revenue and earnings growth.

I believe 2012 has seen Randgold achieve record gold production -- the company is currently producing around 850,000 ounces of gold per year. However, I believe Randgold is targeting 1.2 million ounces a year by 2015.

That said, Randgold is operating within some unstable countries, which has affected production. In particular, production at Randgold's Tongon mine in the Ivory Coast was affected during the last quarter due to power grid problems.

Randgold also reports in U.S. dollars. However, operating costs are split 40:60 between the Central African Franc (CFA) and the U.S. dollar. The CFA is fixed against the euro, which could mean any further weakness in the dollar/euro exchange rate could push up costs for Randgold and reduce operating profits.

Anyway, taking into account Randgold's strong historic growth, next year's predicted growth and the share's PEG ratio, I believe now looks to be a good time to buy Randgold Resources at 6,200 pence.

More FTSE opportunities
As well as Randgold Resources, I am also positive on the FTSE shares highlighted in "8 Dividend Plays Held by Britain's Super Investor." This exclusive report reveals the favorite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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