Should You Book Profits on This NYSE-Listed Gold Mining Stock – GORO

Mar 15, 2022 12:00 AM PDT | Team Kalkine
Should You Book Profits on This NYSE-Listed Gold Mining Stock – GORO


Gold Resource Corporation

Gold Resource Corporation (NYSE: GORO) is a mining company that produces precious and base metal concentrates and doré, including gold, silver, lead, and zinc. Its Mexican affiliate Don David Gold Mine has six projects, including the Arista underground mine at the Aguila project, which supplies ore to the Aguila complex's processing facilities.

Why should Investors Book Profits?

  • Industry Lagging Margins: GORO's gross, EBITDA, and net margins have improved year over year. However, in FY21, its gross, EBITDA, and net margins were 29.4%, 32.0%, and 6.4%, respectively, significantly lower than the industry medians of 49.6%, 41.0%, and 11.0%.
  • Decline in Liquidity: The company's current ratio fell to 1.99x at the end of December 31, 2021, compared to 3.55x at the end of December 31, 2020, indicating that it may suffer solvency challenges.
  • Metal Price Risk: On the worldwide market, the highly unpredictable and uncontrollable prices of gold, silver, and base metals substantially impact GORO's operations. As a result, any adverse price movement may harm the company's bottom line.
  • Regulatory Risk: GORO is a gold mining company requiring several permits from federal and local governments. As a result, more onerous restrictions or non-compliance with required legislation may wreak havoc on the company's bottom line.
  • Macro Headwinds: The relationship between gold and interest rates has been negative in the past. It's impossible to say for sure, but gold prices tend to climb when interest rates decrease and fall when interest rates rise. In such prosperous times, the appeal of a safe haven investment evaporates, and with interest rates rising and the home currency strengthening, the short-term gold price should decline. Recent market fears about the Federal Reserve raising interest rates sooner to combat inflation will put downward pressure on current gold prices, affecting the company's operational profitability.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation


(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

GORO's stock price had surged 30.18% in the past month and is currently leaning towards the mid-band of its 52-week range of USD 1.50 to USD 3.11. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 1.75.

Considering the surge in the share price in a brief span, macro headwinds, industry lagging margins, current valuation, and associated risks, we recommend a "Sell" rating on the stock at the closing price of USD 2.20, as of March 14, 2022.

Three-Year Technical Price Chart (as of March 14, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.