Gold Royalty Corp: A Mispriced Gem in the Evolving Royalty Sector

Gold Royalty Corp. (GROY) has emerged as a compelling case study in the gold royalty sector, where structural improvements in cash flow and EBITDA have not yet translated into commensurate valuation recognition. Despite achieving record revenue of $4.1 million and Adjusted EBITDA of $2.5 million in Q3 2025, the stock remains undervalued relative to its peers and intrinsic metrics. This disconnect stems from a combination of market underappreciation of its recurring revenue model, debt reduction progress, and exposure to gold price tailwinds-all of which position GROY as a strategic buy in a sector poised for long-term growth.

Structural Turn: Recurring Revenue and Balance Sheet Discipline

Gold Royalty's transition to a recurring revenue model is a cornerstone of its value proposition. The company's diversified portfolio of over 250 assets, including seven cash-flowing royalties, has enabled it to generate consistent income streams. This shift contrasts with its earlier focus on pre-construction royalties, which carry higher execution risk. By prioritizing cash-flowing assets, GROY has insulated itself from the volatility of project development cycles, a strategy that mirrors the asset-light models of industry leaders like Franco-Nevada and Wheaton Precious Metals.

Equally critical is the company's disciplined capital allocation. In Q3 2025, GROY repaid $2.0 million of debt and reduced its total debt from $27.3 million to $20.5 million. The CEO, David Garofalo, emphasized that the company is on track to become debt-free by 2026, a timeline that should significantly enhance financial flexibility. This de-leveraging is particularly valuable in a sector where peers like Franco-Nevada boast net debt/EBITDA ratios of 0.0, underscoring the premium investors place on balance sheet strength.

Gold Price Tailwinds and Sector Dynamics

The gold royalty sector is benefiting from a structural bull market driven by geopolitical uncertainty and central bank demand. Gold prices have surged to near $4,000 per ounce in 2025, with the NYSE Arca Gold Miners Index (GDMNTR) outperforming the metal itself by over 50% year-to-date. Gold royalty companies, which typically trade at higher multiples than miners due to their lower capital intensity, are well-positioned to capitalize on this trend.

GROY's exposure to rising gold prices is twofold. First, higher prices directly increase the value of its gold equivalent ounces (GEOs), a key metric for revenue generation. Second, the company's existing royalties provide a margin-insulated income stream, as it does not bear the operational costs of mining. This dynamic is evident in its Q3 gross margin of 94.61%, a figure that dwarfs the industry average for miners, where production costs hover around $1,600 per ounce.

Valuation Mispricing: A Tale of Two Metrics

Despite these strengths, GROY trades at a discount to its peers. As of Q3 2025, the company's P/EBITDA ratio stands at 36.23, similar to Franco-Nevada's 36.23 but trailing Wheaton Precious Metals' 37.8x. However, this comparison masks GROY's unique value drivers. For instance, while Franco-Nevada and Wheaton trade at forward P/E multiples of 45.9 and 56.7, respectively, GROY's net loss of $1.13 million in Q3 2025 reflects temporary fixed costs rather than operational underperformance. Analysts have pegged GROY's fair value at $4.79, suggesting a 30% upside from current levels.

The mispricing is further amplified by market skepticism around GROY's production guidance. While the company's 2025 GEOs output may fall slightly below its 23,000–28,000 GEOs target due to higher gold prices skewing calculations, this is a technical artifact rather than a fundamental weakness. Investors who focus on cash flow rather than production metrics will recognize that GROY's Q3 results-$4.6 million in total revenue-already exceed its 2025 guidance midpoint.

Strategic Upgrade Rationale

The case for upgrading GROY hinges on three pillars:
1. De-risked Growth: With seven cash-flowing royalties and a pipeline of early-stage assets, GROY's portfolio is transitioning from speculative to stable income generation.
2. Gold Price Resilience: As central banks and Western investors continue to rotate into gold, GROY's royalty model offers a leveraged yet low-risk play on the metal's structural strength.
3. Valuation Arbitrage: At a P/EBITDA of 36x, GROY trades at a 20% discount to sector peers despite comparable cash flow margins and a cleaner balance sheet trajectory.

Conclusion

Gold Royalty Corp. represents a rare intersection of structural improvement and market mispricing. While its peers enjoy premium valuations, GROY's disciplined debt reduction, recurring revenue model, and alignment with gold's bull market make it an undervalued contender. As the sector evolves and investors reallocate toward lower-risk, higher-margin plays, GROY is poised to close the valuation gap-and then some.