Hi there,
Wheaton is an interesting company. As a streamer it has a lower risk-profile than producers - this we like. What I find strange about the company, is that even though revenue has consistently been on an upwards trend, earnings have been very erratic. Same goes for the dividend.
There are other streamers that have more predictable earnings and a more reliable dividend such as Franco-Nevada (which we prefer).
Wheaton does have a decent debt profile with plenty of cash on hand to cover current liabilities, but it does have $1.3 billion in debt. Since earnings are erratic, I like to look at the price to cash flow to get an idea on valuation. WPM is trading at a hefty 26 times CF which is well above its five-year average (17x) and the industry average (9.3).
The company's revenue growth rate is expected to drop from 18% this year to 5% in 2021. Given this, I wonder if current valuations are justified.
Over the past year, WPM has jumped by almost 38% but it is actually in negative territory to start the year. This is despite the fact the price of gold and silver are up by almost 4% and 5% in 2020. I think the recent underperformance is a sign that the market has recognized its lofty valuations.
Make no mistake however, if the price of gold and silver continue to trend upwards, it is likely that WPM will break out of consolidation and move upwards. However, if the price of metals stagnate (or worse yet - drop), then there is more downside potential here.
As mentioned, we prefer FNV in this space (despite a higher valuation - 40x CF) as it has a more reliable and consistency history. Likewise, it has outperformed WPM by a pretty significant margin over the past one, three, five and ten year periods. Finally, it is a Canadian Dividend Aristocrat with the longest dividend growth streak in the industry.