Investing in quality stocks trading below their intrinsic value is a proven strategy to generate outsized gains. In the last five years, gold prices have risen at an astonishing pace due to multiple factors, including the COVID-19 pandemic, geopolitical tensions, and the ongoing trade war. However, shares of several gold mining stocks are trading below all-time highs, allowing you to buy the dip.
In this article, I have identified one TSX gold stock down 46% that you can buy right now. Let’s see why I am bullish on this undervalued TSX stock in May 2025.
Is this TSX gold stock undervalued?
Valued at a market cap of $4.3 billion, Equinox Gold (TSX:EQX) went public in March 2017. In the last eight years, the gold stock has returned less than 25% to shareholders, trailing the broader markets by a wide margin.
Equinox acquires, explores, and operates mineral properties in the Americas. It primarily explores gold and silver deposits on properties in the U.S., Mexico, Brazil, and Canada.
Equinox Gold shareholders recently approved the acquisition of Calibre Mining, positioning the company to become Canada’s second-largest gold producer behind Agnico Eagle. Pending regulatory approvals, the merger is expected to close by the end of May.
The combined entity will boast annual production exceeding one million ounces, with significant Canadian exposure through two flagship assets, which include the Greenstone Mine in Ontario (390,000 ounces) and Calibre’s Valentine Mine in Newfoundland (200,000 ounces).
Management projects production will reach approximately 1.2 million ounces in 2025 and increase to 1.4 million ounces by 2026. If gold prices are over US$2,750 per ounce, management forecasts EBITDA (earnings before interest, tax, depreciation, and amortization) growing from $515 million in 2024 to approximately $1.8 billion in 2025, with substantial cash flow earmarked for debt reduction.
However, Equinox wrestles with a few challenges, including the Greenstone ramp-up running behind schedule and the suspension of operations at Los Filos in Mexico due to community agreement issues.
Alternatively, the management expressed optimism about permitting progress at the Castle Mountain project in California, which could eventually contribute 200,000 ounces annually.
Equinox appears poised to benefit from gold’s dramatic price appreciation, which has climbed from approximately US$2,000 in January 2024 to over US$3,300. Notably, analysts and investors are surprised at the disconnect between surging gold prices and flat valuations for mining stocks, which is expected to narrow as cash flows materialize.
With increasing production, declining costs, and improving financial flexibility, Equinox management expects 2025 to be the year when “all this hard work and development is going to really manifest for shareholders.”
What is the target price for this TSX stock?
Analysts tracking EQX stock expect adjusted earnings per share to rise from $0.20 in 2024 to $1.62 in 2027. Moreover, its free cash flow (FCF) is forecast to expand to $814 million in 2027, compared to an outflow of $40 million in 2024.
If the TSX stock is priced at 10 times forward earnings, it will trade around $16.2 per share, above the current price of $9.5. If the mining stock is priced at 10 times forward FCF, it will trade at a market cap of $8.2 billion, indicating an upside of almost 100% in the next two years.
Given consensus price targets, analysts remain bullish and expect EQX stock to gain over 25% from current levels.
