Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) has been one of the best performers on the market this year, thanks in part to the company’s unique business model and the beginning of what many hope is the warming of the precious metals market, which has been frozen for the past few years since gold came crashing down from nearly US$1,900 per ounce.
Silver Wheaton announced quarterly results this week that missed expectations set by analysts, and this brought the stock down. As to whether or not the stock is still a good investment, let’s take a look at what the quarterly results showed first.
Quarterly results
In the company’s first-quarter results announced this week, earnings came in at US$40.98 million compared to the US$49.42 million the company reported in the same quarter last year. In terms of earnings, this represents a year-over-year decline of 17.1%.
Earnings per share for the quarter came in at US$0.10 per share compared to US$0.13 posted last year for the same quarter. Analysts had expected the company to post US$0.12 per share for the quarter.
Despite this drop, the company did manage to post higher revenues for the quarter, coming at US$187.51 million compared to US$130.40 million posted last year, representing a revenue change year over year of 43.7%.
The streaming model
Silver Wheaton is not your typical mining company. The company is a streamer, a different, yet potentially lucrative business model. Silver Wheaton provides upfront cash to mining companies that helps them set up operations.
The return for Silver Wheaton from that investment is two-fold. The company gets rights to purchase the gold and silver that is produced from the mine, and the price that Silver Wheaton pays for the precious metals are sold are significantly less than the market price.
While an ounce of gold may come in at US$1,230 per ounce, Silver Wheaton’s pays about US$400 per ounce. Silver, which currently trades near US$17 per ounce, is available to Silver Wheaton for nearly US$4.50 per ounce.
Silver Wheaton can then turn around and sell those metals for the market price, which has been on the rise of late.
Is Silver Wheaton a good investment?
Over the long term, the prices of metals will increase–people have been using gold and other precious metals as stores of wealth for as long as we’ve been able to take the metal out of the ground. So while Silver Wheaton may have missed forecasts for this quarter, the company still has strong prospects when looking ahead to the future as well as a solid revenue stream from the existing streaming operations.
In my opinion, investors interested in long-term growth should consider the current drop in price as an opportunity to increase their position in the company. With gold and silver prices up this year, the potential upside for Silver Wheaton is greater than this temporary dip.
