With the fear trade running at full speed, it might be time to look at gold trading firm A-Mark Precious Metals (NASDAQ:AMRK). Providing various services for investors, including wholesale distribution, secured lending and direct-to-consumer networks, A-Mark offers a one-stop shop for gold, silver, platinum and palladium bars, ingots and coins. Given the extraordinary bullish sentiment for gold, AMRK stock stands on fertile ground.
Last month, CBS News reported that big-box retailer Costco (NASDAQ:COST) has been selling one-ounce gold bars to its members. At one point, the company was struggling to keep enough inventory on hand. It wasn’t unusual for these gold bars to sell out within minutes of being uploaded on the website.
Adding to the fervor, hedge fund manager Michael Burry of The Big Short fame generated headlines again when his firm Scion Asset Management acquired a large stake in Sprott Physical Gold Trust (NYSEARCA:PHYS). Since January 2016, Scion has outperformed both the S&P 500 and other hedge funds. So, it may pay to follow the idea.
Now, what makes AMRK stock distinct is that it’s a play on investor and consumer sentiment. That’s different from mining-related endeavors, which are subject to unforeseen operational risk factors. Given that people can’t get enough of gold, A-Mark appears compelling.
A-Mark Precious Metals Is Undervalued
Straight off the bat, AMRK stock is undervalued. It’s a distinct publicly traded business so it’s difficult to classify. However, if we were to compare A-Mark to the capital markets industry, AMRK seems to be the bargain of the century. While the sector clocks in at 18.51x revenue, A-Mark trades at only 0.09x.
Of course, with such a low multiple, fears exist about a potential value trap. However, that might not apply to AMRK stock.
For the fiscal year ending June 2024, analysts anticipate that revenue will land at $10.09 billion. But here’s the deal. On a trailing-12-month basis, A-Mark has already posted sales of $10.29 billion.
In other words, demand for physical gold products is so strong that analysts might need to adjust their figures upward. Even the high-side sales target of $10.9 billion seems rather soft. Anyways, if we were to apply this projection, then AMRK stock would be trading at a sales multiple of 0.08x.
As evidence for precious metals demand, consider that A-Mark suffered a 37.12% drop in the top line in 2019. Yet inclusive of this shortfall, the average sales growth rate between 2019 to 2023 came out to 7.49%. That’s impressive, leading me to believe that AMRK stock could be due for a big surprise.
Trade of the Day: Buy AMRK Stock
Today’s trade of the day is short and sweet: Just buy AMRK stock in the open market. However, it may be crucial to think about this idea soon.
I say this because of the technical profile. Since early last month, AMRK stock appears to have charted a pattern similar to a bullish flag formation. It’s not exact. However, the price action appears to be at the final stages of a spike-consolidation-spike pattern that traders love. A consolidation follows an initial rush of demand, only to yield more upside.
Such a pattern also makes sense when considering the broad fundamentals. When news broke about the rush in gold, investors quickly bought up AMRK stock. Following the euphoria, the bears came in, seeking an opportunity to drive down the price. However, the bulls aren’t willing to give in so easily, resisting the short traders.
Because the outside fundamentals are so compelling, I personally believe there’s a 60/40 chance that AMRK stock breaks to the upside soon.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
