Goldcorp Inc. Tanks 10% After its Q3 Release: What Should You Do Now?

Goldcorp Inc. (TSX:G)(NYSE:GG) released mixed third-quarter earnings on October 29, and its stock reacted by falling over 10%. Should you buy on the dip?

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Goldcorp Inc. (TSX:G)(NYSE:GG), one of world’s largest producers of gold and silver, announced mixed third-quarter earnings results before the market opened on October 29, and its stock responded by falling over 10% in the trading session that followed. The company’s stock now sits more than 47% below its 52-week high of $25 reached back in January, so let’s take a closer look at the results to determine if this sell-off represents a long-term buying opportunity or a major warning sign.

The results that ignited the sell-off

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

Metric Q3 2015 Actual Q3 2015 Expected Q3 2014 Actual
Adjusted Earnings Per Share ($0.04) $0.04 $0.09
Revenue $1.10 billion $1.05 billion $839 million

Source: Financial Times

In the third quarter of fiscal 2015, Goldcorp reported an adjusted net loss of $37 million, or $0.04 per share, compared to an adjusted profit of $70 million, or $0.09 per share, in the same period a year ago, as its revenues increased 30.9% year over year to $1.1 billion. The company’s steep decline in net income can be partially attributed to its mine operating costs increasing 48.8% to $1.05 billion, as well as its weighted-average number of shares outstanding increasing 2% to 830.2 million.

Its very strong revenue growth can be attributed to higher sales volumes, including its gold sales increasing 47% to 942,600 ounces and its silver sales increasing 30.5% to 11.04 million ounces, and this more than offset the negative impact of lower gold and silver prices.

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

  1. Gold production increased 41.5% to 922,200 ounces
  2. Averaged realized gold price decreased 12% to $1,114
  3. Silver production increased 44.8% to 11.31 million ounces
  4. Average realized silver price decreased 17.2% to $13.01
  5. All-in sustaining costs per ounce of gold decreased 20.5% to $848
  6. Adjusted operating cash flows decreased 6.3% to $374 million
  7. Reported free cash flow of $243 million, compared to a cash use of $355 million in the year-ago period
  8. Earnings from mine operations decreased 65.2% to $46 million

Should you buy in to or avoid the sell-off?

It was a weak quarter overall for Goldcorp, but I think the sell-off was a bit overdone at more than 10%. With this being said, I think the downside will be minimal from here and the stock represents an attractive long-term investment opportunity, because it now trades at a mere 0.64 times its book value per share of $20.57, which is very inexpensive compared with its five-year average price-to-book multiple of 1.32.

At the very least, I think Goldcorp’s stock will trade at three-quarters of its book value per share within the next three months, which would place its shares around $15.50, and this represents upside of more than 17% from today’s levels. In the long term, I think its stock will trade at or above its book value, and although this number will change each quarter, it represents upside of more than 56% from current levels.

With all of the information provided above in mind, I think Foolish investors should consider using the post-earnings weakness in Goldcorp’s shares to begin scaling in to long-term positions.

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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