AG's Q4 Production Surge Reinforces Overvaluation Risk Amid Crowded Momentum

What happened

First Majestic Silver reported a 37% year-over-year increase in Q4 silver-equivalent production to 7.8 million ounces, driven by a 77% surge in silver output primarily from the Los Gatos joint venture. This growth aligns with the operational turnaround highlighted in the DeepValue report, which notes improved volumes and costs due to Los Gatos integration and mine optimizations. However, the report critically assesses that AG's stock, at $19.83, trades at extreme valuations with a P/E of 127x and EV/EBITDA of 81x, embedding unrealistic assumptions of a sustained silver super-cycle. Despite the positive production beat, the valuation remains disconnected from fundamental risks, including potential silver price normalization towards mid-$30s per ounce and high reinvestment needs from elevated capex. The report maintains a STRONG SELL rating, emphasizing that operational gains are already priced into a crowded momentum trade, leaving investors exposed to significant downside from multiple compression.

Implication

The Q4 production increase confirms AG's operational execution but fails to justify its elevated multiples, as the market has already priced in aggressive growth assumptions. With silver prices potentially normalizing towards mid-$30s per ounce, AG's earnings could compress, leading to a severe multiple contraction from current levels. The company's high capex and recent convertible note issuances add financial complexity and dilution risk, further eroding per-share value in a downturn. Momentum-driven buying has made the stock crowded, increasing vulnerability to sentiment shifts or any disappointment in upcoming 2026 guidance. Therefore, while the business is fundamentally improving, the equity offers poor risk-reward, and investors should wait for a lower entry point below $13 or clearer signs of sustainable profitability at reasonable valuations.

Thesis delta

The Q4 production data reinforces the operational improvements acknowledged in the DeepValue report, but it does not alter the core thesis that AG is overvalued and at risk of multiple compression. No shift is warranted; the STRONG SELL rating remains intact, as the production beat is likely already priced in, and the valuation disconnect persists despite solid execution. Investors should continue to monitor 2026 guidance and silver price trends for any material changes to the investment case.