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