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Should Eldorado Gold Corp. Be Atop Your Long-Term Buy List?

Eldorado Gold Corp. (TSX:ELD)(NYSE:EGO), one of the world’s leading low-cost gold producers, announced first-quarter earnings results after the market closed on April 30 and its stock responded by rising over 2% in the trading session that followed. Even after this slight rally, Eldorado’s stock still sits more than 36% below its 52-week high, so let’s take a closer look at the results to determine if we should consider initiating long-term positions today, or if we should look elsewhere for an investment instead.

The results that sent its shares higher

Here’s a summary of Eldorado’s first-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
Earnings Per Share $0.03 $0.02 $0.05
Revenue $238.31 million $226.10 million $279.87 million

Source: Eldorado Gold Corp.

Eldorado’s adjusted earnings per share decreased 40% and its revenue decreased 14.8% compared with the first quarter of fiscal 2014. The company’s steep decline in earnings per share can be attributed to its adjusted net income decreasing 47.7% to $19.5 million, led lower by $10.24 million in foreign exchange losses and $499 million in mine standby costs.

Its double-digit percentage decline in revenue can be attributed to two primary factors. First, Eldorado sold just 181,820 ounces of gold during the quarter, a decrease of 4.6% from the year-ago period. Second, the average realized price of gold decreased 5.2% year over year to $1,232 per ounce. These two factors led to its total gold sales decreasing 9.5% to $224 million.

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

  1. Gold produced decreased 3.6% to 189,414 ounces
  2. All-in sustaining cash costs decreased 7.3% to $729 per ounce of gold
  3. Gross profit from gold mining operations decreased 20.4% to $77.1 million
  4. Operating profit decreased 58.8% to $30.41 million
  5. Cash flow from operating activities before changes in non-cash working capital decreased 37.8% to $58.9 million
  6. Ended the quarter with $445.61 million in cash and cash equivalents, a decrease of 10.6% from the beginning of the quarter

Should you buy Eldorado Gold today?

Even though I do not think the post-earnings pop in Eldorado’s stock was warranted, I do think it represents an intriguing long-term investment opportunity today. I think this because it trades at favourable forward valuations, including just 30.8 times next year’s estimated earnings per share of $0.20, which is very inexpensive compared with its five-year average price-to-earnings multiple of 36.9.

I think Eldorado’s stock could consistently command a fair multiple of at least 35, which would place its shares upwards of $7 by the conclusion of fiscal 2016, representing upside of more than 13.5% from current levels.

With all of the information provided above in mind, I think Eldorado Gold represents a great long-term investment opportunity today. All Foolish investors should take a closer look and consider initiating positions.

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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.

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