Time to grab the pickaxes and mine the market for the best gold opportunities. On today's docket is Goldcorp (GG). Although investors had numerous reasons to deem 2017 a success, last year was a challenging one for the company's stock: Shares tumbled 6%. Does this mean that Goldcorp's stock is nothing more than fool's gold, or does it suggest there's a bargain to be had? Let's dig a little deeper to find out.
Looking into the future through gold-tinted glasses
No discussion of Goldcorp would be complete without mention of the company's five-year growth plan. Aspiring to grow net asset value per share by 2021, Goldcorp is striving to achieve 20% increases in both gold production and reserves from its fiscal 2016 levels and a 20% reduction in all-in sustaining costs (AISC) from its fiscal 2016 amount. And over the past year, management has inspired confidence in shareholders that the company is on track to meet its targets.
For one, Goldcorp, according to preliminary results, surpassed the midpoint of its guidance and achieved gold production of 2.59 million ounces for fiscal 2017, positioning it well to meet its 2021 gold production target of 3 million to 4 million ounces. In order to attain this goal, the company is relying on the Pyrite Leach Project, which is developing three months ahead of schedule, at Penasquito, and the Materials Handling Project, which is on schedule and under budget, at Musselwhite.
Image source: Getty Images.
In addition, Goldcorp is on track to achieve its all-in sustaining costs (AISC) target for 2021. Whereas the company reported AISC of $856 in fiscal 2016, preliminary results suggest the company -- thanks to the identification of annual sustained efficiencies -- will report AISC of $825 for fiscal 2017, leaving the company on track to reduce AISC to $700 by 2021.
Finally, Goldcorp made strides in pursuit of its reserves target. Ending fiscal 2016 with 50 million ounces in gold reserves, the company estimates it finished fiscal 2017 with 53.5 million ounces. Again, the company is on track to meet its 2021 target of 60 million ounces in gold reserves.
Time for a checkup
Goldcorp receives high marks for its ambitious initiative to grow shareholder value, but it's important to also consider the company's financial health. After all, its bright future could be greatly dimmed if it finds itself buried in debt.
First, we'll consider its present condition by looking at its quick ratio, which measures the company's ability to meet its short-term obligations. The quick ratio subtracts the company's inventories from its most liquid assets -- like cash and short-term investments -- and divides it by its current liabilities. To provide some context, we'll also consider Goldcorp's peers: Barrick Gold (GOLD 0.12%), Newmont Mining Corp. (NEM 5.86%), Kinross Gold (KGC -1.59%), and Yamana Gold (AUY).
ABX Quick Ratio (Quarterly) data by YCharts.
Goldcorp's quick ratio of 0.57 presents cause for concern. Should there be a sudden downturn in the price of gold, the company -- unlike Newmont Mining, Kinross Gold, and Barrick Gold -- could find itself in a perilous position.
Cognizant of the company's less-than-desirable liquidity, management seems intent on shoring up the balance sheet over the next several years.
Image source: Goldcorp investor presentation.
During an investor presentation from January, management suggested to shareholders that strengthening the company's balance sheet is also of great concern, presenting a clear target to measure its success: a net debt-to-EBITDA ratio below 0.1.
The price tag
Lastly, we'll take a look at the stock price to see if there's an opportunity to pick up some shares on the cheap.
ABX PS Ratio (Annual) data by YCharts.
Although Goldcorp's stock, in terms of its price-to-sales ratio, currently trades lower than its five-year average of 4.0 according to Morningstar, it seems less of a bargain in comparison to its peers, trading at a premium to each of them.
Moreover, the company's stock appears to be less of a compelling opportunity when considering it in terms of operational cash flow. In addition to trading at a higher multiple than its peers, the stock trades above its three-year average of 12.5.
Investor takeaway
Granted, Goldcorp seems headed toward a glittering future thanks to management's five-year growth initiative. However, I'm generally skeptical when it comes to gold miners' stocks. This, in addition to concerns regarding the company's liquidity and the stock's high valuation, means I'd rather watch this story play out from the sidelines.
