Is Thompson Creek Destined for Greatness?

Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let's take a look at what Thompson Creek Metals' (TCPTF) recent results tell us about its potential for future gains.

What the numbers tell you
The graphs you're about to see tell Thompson Creek's story, and we'll be grading the quality of that story in several ways.

Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company's become more efficient over time. Since profits may not always be reported at a steady rate, we'll also look at how much Thompson Creek's free cash flow has grown in comparison to its net income.

A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If Thompson Creek's share price has kept pace with its earnings growth, that's another good sign that its stock can move higher.

Is Thompson Creek managing its resources well? A company's return on equity should be improving, and its debt to equity ratio declining, if it's to earn our approval.

By the numbers
Now, let's take a look at Thompson Creek's key statistics:

TC Total Return Price data by YCharts

Source: YCharts. * Period begins at end of Q3 2009.

TC Return on Equity data by YCharts

Source: YCharts. * Period begins at end of Q3 2009.

How we got here and where we're going
A mere two of seven possible passing grades for Thompson Creek today. Its stock growth pass is only merited because EPS has actually declined at a slower rate than the stock price. However, mining companies can turn things around quickly by striking the mother lode. Can Thompson Creek manage this rare feat soon?

If you believe Foolish mining guru Christopher Barker, Thompson Creek can climb back out of this hole, but it won't be easy. Delays and cost overruns for the "mother lode," Thompson Creek's Mt. Milligan copper and gold mine, forced the company to sell just over half that mine's future gold production to Royal Gold (RGLD 0.03%) for the resources necessary to keep plowing ahead.

Cost overruns aren't exclusive to Thompson Creek by a long shot. My fellow Fool Sean Williams points to three other once-promising gold mine developments that have turned into huge dead weights on their companies' balance sheets: Newmont Mining's (NEM -0.86%) Hope Bay mine, Kinross Gold's (KGC -1.56%) Tasiast mine, and Agnico-Eagle Mines' (AEM 0.51%) Meadowbank mine. The smallest of the three, Agnico-Eagle, is 20 times Thompson Creek's size, and yet it's the only one to have avoided a share price decline this year, the result of outperformance relative to its sector. No matter how big you get, a big stalled out project can really hurt.

Thompson Creek's current revenue streams, derived largely from the steelmaking mineral molybdenum, have been severely crimped thanks to a double whammy of weak demand that's fed into moly price declines. This has damaged the entire moly mining industry. Taseko Mines (TGB 2.05%) and Molycorp (NYSE: MCP) have suffered as well, although Taseko's copper mining operations have helped it resist the steep, steep price declines both Molycorp and Thompson Creek's shares have endured this year.

Steel demand is a critical component of Thompson Creek's near-term turnaround possibilities. Mt. Milligan's arduous development process has to reach a fruitful conclusion to justify the long-term hopes of investors who have waited for the gold rush. Many critical elements of Thompson Creek's rebound may simply be out of its hands at the moment.

Putting the pieces together
Today, Thompson Creek has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.