I like B2 Gold Corp. (BTO)

Little bells start ringing when I decide a stock may be a buy. The first bell is the stock price. If it is off its high for the past year by 20% or more, it is in bear market territory. If it's alone in its descent, this is worrisome. But, if the entire market is down as well, we may well have a buying low moment.

Recently, B2 Gold Corp caught my attention. It was off its high for the year by 38%. Was B2 Gold in trouble or was the stock undervalued?

For an answer, check the P/B ratio. If it less than 1.0, the stock may be undervalued. B2 Gold had a P/B value of 0.9. A promising number.

As a dividend investor, before going farther, I check the dividend. I require a dividend of at least 4% and ideally with a payout ration below 80%. The lower the payout ratio the better. The payout ratio indicates the percentage of a company's earnings, or in some cases cash flow, that is being devoted to dividends. B2 Gold has a 6% dividend with a payout ratio of 68%. All good.

Keep in mind, bear markets drive yields higher. A two dollar dividend on a hundred dollar stock yields 2%. If the stock price falls by half to $50, the two dollar dividend now yields 4%. This is yet another reason to buy low.

Moving on, it is time to check the ROE or return on equity. The higher the ROE the better. To get a handle on what high actually means, check the ROEs of comparable companies in the same industry or sector. The ROE is more than just a measure of profitability, it is a measure of a company's efficiency at pumping out profits. According to TD WebBroker, the B2 Gold ROE leads the pack. Read what WebBroker had to say:

TD WebBroker has a section on Profitablility under Function. The BTO numbers look excellent. See for yourself, the numbers are reproduced below:

If a company isn't profitable you probably do not want to buy its stock but a profitable company may still have stock selling from the bargain bin. More and more this appears to be the case when it comes to B2 Gold. Let's continue our investigation.

The P/E Ratio (TTM), TTM being the trailing price-to-earnings ratio, is another indicator of whether a stock is expensive or cheap. A low P/E (TTM) ratio suggests the stock is undervalued. B2 Gold has P/E (TTM) of 10.8. This is low.

Another clue indicating a company is undervalued is the P/CF or price to cash flow ratio. This ratio compares a company's share price to its operating cash flow. It is calculated by dividing the market capitalization by the operating cash flow of the company or on a per-share basis by dividing the share price by the operating cash flow per share. The lower the P/CF ratio the better. A number below 10 indicates the stock may be undervalued. 

The P/CF ratio is seen as a better investment valuation indicator than the P/E ratio because it provides a less distorted picture of a company's value, especially for companies with large non-cash expenses. B2 Gold has a P/CF of 4.7, well below 10. Again, good!

B2 Gold is getting ready to open a new gold mine in Nunavut come 2025. That's good. At the present time B2 Gold has a large mine in Mali among others. The Russians are showing interest in Mali and its gold. That's bad. I decided to buy B2 Gold. I picked up some shares for about $3.60. The dice are thrown. Will I have a winner?