Eldorado Gold Corp.’s Q2 Earnings Sent Shares Soaring: Could the Rally Continue?

Eldorado Gold Corp. (TSX:ELD)(NYSE:EGO) released second-quarter earnings on July 30, and its stock reacted by soaring over 11%. Should you buy now?

| More on:
The Motley Fool

Eldorado Gold Corp. (TSX:ELD)(NYSE:EGO), one of the world’s leading low-cost gold producers, announced better-than-expected second-quarter earnings results after the market closed on July 30, and its stock responded by soaring over 11% in the trading session that followed. Let’s take a closer look at the results to determine if a rally of this magnitude was warranted, and then decide if we should buy or avoid the stock today.

The results that enabled the rally

Here’s a summary of Eldorado’s second-quarter earnings results compared with what analysts had anticipated and its results in the same period a year ago. All figures are in U.S. dollars.

Metric Reported Expected Year-Ago
Adjusted Earnings Per Share $0.02 $0.01 $0.05
Revenue $214.19 million $213.45 million $265.50 million

Source: TheStreet

Eldorado’s adjusted earnings per share decreased 60% and its revenue decreased 19.3% compared with the second quarter of fiscal 2014. These year-over-year declines can be attributed to three primary factors.

First, gold prices have fallen over the last year, which led to the company’s average realized gold price decreasing 7.5% to $1,201 per ounce. Second, its all-in sustaining cash cost per ounce of gold sold increased 8.6% to $900. Third, the company’s sales volume of gold decreased 10.8% to 170,056 ounces. All three of these factors led to Eldorado’s revenue from the sale of gold decreasing 17.5% to $204.2 million and its gross profit from gold mining operations decreasing 39.9% to $61.4 million.

Here’s a quick breakdown of five other notable statistics from the report compared with the year-ago period:

  1. Gold production decreased 9.7% to 181,160 ounces
  2. Cash operating costs per ounce of gold sold increased 16.4% to $569
  3. Total cash cost per ounce of gold sold increased 12.6% to $618
  4. Cash flow from operating activities before changes in non-cash working capital decreased 32.9% to $61.9 million
  5. Ended the quarter with $446.13 million in cash and cash equivalents, an increase of 0.1% from the beginning of the quarter

Eldorado also declared a dividend of CDN$0.01 per share that will be paid out on August 26 to shareholders of record at the close of business on August 17.

What should you do with Eldorado’s stock today?

It was solid quarter overall for Eldorado, so I think its stock reacted correctly by moving higher, but I think the rally of more than 11% was a bit overdone. However, I do think the stock represents an attractive long-term investment opportunity because it still trades at favourable forward valuations, including 30 times fiscal 2016’s estimated earnings per share of $0.15, which is inexpensive compared with its five-year average price-to-earnings multiple of 36.1.

I think Eldorado’s stock could consistently command a fair multiple of at least 35, which would place its shares around $5.25 by the conclusion of fiscal 2016, representing upside of more than 16% from today’s levels.

With all of the information provided above in mind, I think Eldorado Gold is one of the top turnaround plays in the gold industry today. Foolish investors should take a closer look and consider beginning to slowly scale in to long-term positions over the next couple of weeks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Metals and Mining Stocks

People walk into a dark underground mine.
Metals and Mining Stocks

The Best Mining Stock to Invest $200 in Right Now

Teck stock may be into basic materials, but an investment in this mining stock is anything but basic.

Read more »

nugget gold
Metals and Mining Stocks

Outlook for Franco-Nevada Stock in 2025

Franco-Nevada stock offers exposure to precious metals with below-average risk, particularly since it appears to be undervalued today.

Read more »

todder holds a gold bar
Metals and Mining Stocks

Barrick Gold: Buy, Sell or Hold in 2025?

As global economic uncertainties support a positive gold outlook, analysts are bullish on this gold stock.

Read more »

nugget gold
Metals and Mining Stocks

Outlook for Barrick Gold Stock in 2025 

It’s time to set your investment strategy for 2025. Should Barrick Gold be a part of your 2025 investments?

Read more »

nugget gold
Metals and Mining Stocks

Buy, Hold, or Sell the Gold in Your Portfolio?

Identifying the right time to exit a bullish trend can significantly impact your overall returns from that trend.

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Metals and Mining Stocks

Is Nutrien Stock a Buy, Sell, or Hold for 2025?

Nutrien is down 10% this year. Is the stock oversold?

Read more »

profit rises over time
Tech Stocks

4 Momentum Stocks to Buy as the TSX Rises Higher

These four momentum stocks are the perfect options for investors wanting to gain more income, not just now but for…

Read more »

Metals
Metals and Mining Stocks

3 Unstoppable Metal Stocks to Buy Right Now for Less Than $1,000

Gold prices are expected to keep rising or stabilize in the next few months, and the precious metal stocks rising…

Read more »