Expensive Golden Star Resources Stock by the Numbers

Numbers can lie but they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

The current price multiplesr
First, we'll look at most investors' favorite metric the P/E ratio. It divides the company's share price by its earnings per share (EPS) the lower, the better.

Then, we'll take things up a notch with a more advanced metric enterprise value to unlevered free cash flow. This divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). Like the P/E, the lower this number is, the better.

Analysts argue about which is more important earnings or cash flow. Who cares? A good buy ideally has low multiples on both.

Golden Star Resources has a P/E ratio of 51.8 and an EV/FCF ratio of 18.5 over the trailing 12 months. If we stretch and compare current valuations to the five-year averages for earnings and free cash flow, Golden Star Resources has negative P/E and EV/FCF ratios.

A one-year ratio under 10 for both metrics is ideal. For a five-year metric, under 20 is ideal.

Golden Star Resources is zero for four on hitting the ideal targets, but let's see how it compares against some competitors and industry mates.

The consistency of past earnings and cash flowr
An ideal company will be consistently strong in its earnings and cash flow generation.

In the past five years, Golden Star Resources' net income margin has ranged from -35 percent to 23.6 percent. In that same time frame, unlevered free cash flow margin has ranged from -134.4 percent to 17.6 percent.

How do those figures compare with those of the company's peers? See for yourself

Additionally, over the past five years, Golden Star Resources has tallied up three years of positive earnings and two years of positive free cash flow.

Next, let's figure out

How much growth we can expectr
Analysts tend to comically overstate their five-year growth estimates. If you accept them at face value, you will overpay for stocks. But while you should definitely take the analysts' prognostications with a grain of salt, they can still provide a useful starting point when compared to similar numbers from a company's closest rivals.

Let's start by seeing what this company's done over the past five years. In that time period, Golden Star Resources has put up some losses that render its EPS growth rate meaningless. Meanwhile, Wall Street's analysts expect future growth rates of 132 percent.