When a stock can retreat 25% from a recent peak, and still remain one of the best-performing investment vehicles in its sector, the observant Fool knows to look for opportunity in the pullback.
Royal Gold (RGLD 1.61%) reported record royalty revenue of $79.9 million on Thursday for its fiscal second quarter of 2013, along with record adjusted EBITDA of $73.4 million. At 92% of revenues, that's one seriously robust EBITDA margin that speaks to the perennial beauty of the underlying royalty and streaming business models. I have marveled at the unrivaled profitability of its popular counterpart in the silver industry, but not even that serial outperformer can claim to have bested the five-year trailing return of Royal Gold.
Thanks principally to impressive production growth from the Andacollo copper mine -- where operator Teck Resources (TECK 0.15%) performed some valuable tinkering through de-bottlenecking and plant optimization efforts -- Royal Gold delivered 16% growth in net earnings atop only a 2% increase in the average realized gold price. Andacollo alone accounted for 30% of the company's royalty revenues, which underscores the significance of looming projects like Thompson Creek Metals' Mt. Milligan and Barrick Gold's (GOLD 1.33%) Pascua-Lama to the diversification of its revenue stream.
Along with larger rival Franco-Nevada, and noteworthy up-and-comer Sandstorm Gold (SAND 3.24%), the small group of royalty and metal-streaming plays have certainly proven their mettle with their easy outperformance (over the trailing-five-year period) of both the underlying metal prices and the relevant mining shares. Have a look at the following five-year chart, which confirms that Royal Gold's shares have provided a truly superior vehicle for gold exposure, even to the overly popular SPDR Gold Trust (GLD -0.74%).
Within that longer-term context, I encourage Fools to view the recent 25% pullback in the shares of Royal Gold as the sort of gold investment opportunity that doesn't come along every day. While some additional near-term weakness is conceivable -- particularly if Barrick were to reveal any further delay to its problem-plagued Pascua-Lama project when the miner provides a project update in mid-February -- Royal Gold's stock near $75 per share shows far more upside promise than downside risk to this long-term oriented Fool.
