I zoomed in Tahoe Resources Inc. (TAHO, Financial). when screening in the precious metals mining industry for stocks with low price-book (P/B) ratios and high EBITDA margins.
Tahoe Resources is trading with its book value (P/B) per share at 0.59 times versus an industry median of 2.01. Its EBITDA margin of 42.2% is well above the industry median of 23%. (That is a calculation of earnings before interest, tax, depreciation and amortization, divided by the company's total revenue.)
Today the stock is incredibly cheap. For the 52 weeks through Jan. 5, Tahoe Resources lost nearly 48% on the New York Stock Exchange and underperformed the VanEck Vectors Gold Miners ETF (GDX, Financial) by 53.4%:
Source: Yahoo Finance
Tahoe Resources’ current share price of $4.92 is well below the 200-SMA line and nearby the 100-SMA line.
The 52-week price ranges from $4.15 to $10.08. Tahoe Resources is trading only 35 cents to 37 cents above the 52-week low.
The RSI of 58.94 just started down trending, meaning further depreciation in the market value of the stock is likely over the coming trading weeks.
However, according to the current market value and the analysts’ average target price of $8.17 per share, there is already a hefty 66% upside to enjoy within the next 52 trading weeks if investors acquire shares of Tahoe Resources today.
The recommendation rating is 2 out of 5.
Catalysts to watch
The catalyst is represented by the price of the main underlying commodity produced by Tahoe Resources, which is currently gold. The production and sale of the yellow metal currently represents approximately 95% of the company’s business. That is, as a result of the Guatemalan operations' interruption due to the CALAS claim. The rest of the miner’s business is shared between the sale of silver (3.5 to 4%) and basic metals. including lead and zinc (1 to 1.3%).
In the last quarter of 2017 the bullion averaged $1,275 an ounce on the London market. For 2017, Tahoe Resources revised its guidance on gold production upwards and on costs downwards. This means that the miner will likely exceed consensus on fourth-quarter earnings, which could drive up the market value of Tahoe Resources.
Fourth-quarter earnings are expected to be announced on Feb. 22. Consensus is for a per-share net profit one cent and for sales of $130.15 million. Analysts foresee a 31.3% decline in the miner’s revenue on a year-over-year basis.
For all of 2017, Tahoe Resources guided a gold production between 400,000 ounces and 450,000 ounces. While cash costs and all-in sustaining costs per ounce of metal sold are expected in the $650 to $700 and $1,050 to $1,150 ranges.
Tahoe Resources Inc. is a U.S. mining company engaged in the production of precious metals in the Americas.
It aims to maximize shareholder value through the development operation of world-class mines. The miner is currently operating in the Peruvian La Arena and Shahuindo gold mines, and the Canadian Timmins West and Bell Creek gold mines.
Tahoe Resources also operates the Escobal silver mine in Guatemala.
Balance sheet
The balance sheet of the company is solid with a $182.38 million in cash on hand and equivalents plus a revolving availability of $75 million. Tahoe Resources has revolving credit facilities totaling $300 million. Its borrowing ability has been limited to $75 million because of the interruption of the company's mining license at Escobal in Guatemala after the CALAS claim.
The resolution of mining licenses at Escobal is another short-term catalyst to Tahoe Resources. It will be positively welcomed by the market because it will prevent that a default event under the revolving facility agreement will occur.
In addition, Tahoe Resource’s high volatility with regard to changes in the price of gold will play in favor of investors as gold will steadily climb in 2018.
Source: Investing.com
The high gold volatility of Tahoe Resources can be easily picked in the chart above where the stock is compared with the Comex (Gold Futures).
Van Eck Associates Corporation and Franklin Resources, Inc. stand out among the top institutional holders of the company with 9.90% and 6.42% of outstanding shares.
Disclosure: I have no positions in any stock mentioned in this article.
