+ Watch GORO
on My Watchlist
Low cost gold producer in Mexico, focused on cash flow and potential dividends.
The past few years have reminded me of the 90’s tech bubble. It seems that if you just put the word “gold” in your company name the stock is automatically worth a thousand times its fair value. This is the same trick used in the 90’s where all you had to do was put “dot com” in the company name and the stock price would shoot up to some ridiculous valuation. I was also very surprised to see that this company pays a dividend. Since this is still an exploration stage company and has obviously never been profitable, then why in the world would they pay a dividend? This is pretty much a legal Ponzi-scheme where the company uses the investors own money to pay them with. This is an awful company that doesn’t deserve to exist; I truly cannot understand why anyone would invest in this trash stock.
I don't disagree for a second, but how does this company have a PE if they don't have earnings? Do they count the dividend or something? Keep up the stellar analyses!
The company has a P/E because it earned $58 million in net income (accounting profit) in the most recent year.
This company has always struck me as a clever way of attracting gold bugs to a gold "investment" that produces an income stream through its dividend. Warren Buffet and Charlie Munger's biggest complaint against gold was its inability to produce a sustainable cash flow through most of the various investment vehicles out there in the marketplace. Management of GORO has capitalized on this pent up demand by providing an investment vehicle that on the surface appears to be both a gold play and an income play. However, the company still has not proven its reserves to the SEC and continues to make gold purchases to stockpile inside their mine. One begins to wonder if they are mining dirt and melting down the gold and silver they purchase to salt their dirt to give the appearances of a viable gold and silver operation. With the questions raised about their operations the valuation of this stock is truly absurd. Removing the tax assets and liabilities from their balance sheet gives us a book value of around $77 million yet the market cap of this company is $1,400 million...Management of this company returns ~2.8% of your money in the form of a dividend every year with a money printing rate by the private banks and federal government of around 8% a year. So in order for you to at least match the devaluation of the currency your underlying asset would have to grow by over 5% a year. Now you also have to add in the rate of growth of the company net dividends to justify its $1,400 million market cap. Let us start by looking forward 20 years. The company would have to grow by 16.5% a year for every year plus the 5% for currency devaluation for a 21.5% CAGR to justify its current market cap. Now let us compare that to what the company has done so far, but first, let us normalize the accounts receivable balance as it does not jive with the accounts payable balance. As of the last 10-K A/P grew by ~ 3.2 million and A/R grew by ~ 13 million. Let us say operating margins are 50%, so lets double the growth in A/P to arrive at a 6.4 million growth in A/R. We need to deduct 6.6 million of A/R from the balance sheet as it is questionable. So as of the last 10-K assets net funny A/R and tax noise grew by 33.3%. Now lets apply a simple log curve to growth and reduce it every year to 0 at year 20. We arrive at a CAGR of ~ 13% without accounting for management risk.So you have a growth deficit of 8 to 8.5% a year on this company that is priced at 20x its book value. Buffet and Munger were right after all. Gold does not work as an investment, its only value is as a preservation of purchasing power and when third parties get involved that purchasing power is transferred to those third parties.
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