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Friday, October 8, 2010

Is Rangold (Nasdaq:GOLD) Valuation Too Pricey?

As Randgold (Nasdaq:GOLD) continues on its torrid upward share price move, some analysts are starting to get nervous about the company being too pricey to buy at this time, as valuations are high.

So far in 2010, Randgold has risen even faster than the exploding gold prices, adding to the concern investors may want to wait for them to pull back before putting more money into the company.

In 2010 Randgold shares have increased by about 27 percent, generating the concern of if they can continue to move up based on a forward price-to-earnings basis. In that regard they do seem expensive.

The company has also said gold production for the full year will be less than original estimates, dropping from 470,000 to around 455,000.

Increasing costs are also a concern, as the grew to $665 an ounce in the prior quarter.

CEO Mark Bristow has said over the mid- to long-term, hitting better grades will help bring down cash costs.

In the overseas markets the work in, the U.S. dollar won't help them as it continues to weaken, as the other currencies have remained pretty level against them.

Other inputs have also remained stable. So if better grades are hit and gold prices continue to rise, Randgold will have a lot of room to move upward, including new projects coming online.

If it takes a significant amount of time to cash in on better grades, then Randgold could experience downward pressure until the company catches up with it.

Long term they should continue to do well, although short term they could come under pressure.

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