Has Coeur d'Alene Mines Become the Perfect Stock?
May 29th 2012 9:48AM
Updated May 29th 2012 4:42PM
Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?
One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Coeur d'Alene Mines (NYS: CDE) fits the bill.
The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:
- Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
- Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
- Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
- Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
- Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
- Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.
With those factors in mind, let's take a closer look at Coeur d'Alene Mines.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||35.8%||Pass|
|1-Year Revenue Growth > 12%||63.7%||Pass|
|Margins||Gross Margin > 35%||57.4%||Pass|
|Net Margin > 15%||8.3%||Fail|
|Balance Sheet||Debt to Equity < 50%||6.8%||Pass|
|Current Ratio > 1.3||1.77||Pass|
|Opportunities||Return on Equity > 15%||4.0%||Fail|
|Valuation||Normalized P/E < 20||12.19||Pass|
|Dividends||Current Yield > 2%||0%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||6 out of 10|
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Coeur d'Alene Mines last year, the company has picked up a point. Returning to profitability was the key component of the miner's success in the past year, but the stock's recent plunge raises concerns about whether the big bull market in precious metals may be coming to an end.
Coeur d'Alene primarily mines silver, with a world-class deposit of silver and gold in its Palmarejo mine in Mexico. The area has so much promise that Paramount Gold & Silver (ASE: PZG) bought up land neighboring the Palmarejo mine. Meanwhile, with Coeur d'Alene having topped the 20 million ounce mark in production, the company now rivals Pan American Silver (NAS: PAAS) with its recent growth.
Most recently, Coeur d'Alene reported strong earnings for its first quarter, with an 11% rise in adjusted profits. Yet one area where Coeur d'Alene is falling behind is in its lack of dividend. By contrast, rival Hecla Mining (NYS: HL) started paying a dividend tied to average silver prices. Still, with Coeur d'Alene having just gotten out of the red, a conservative approach toward dividends makes a degree of sense.
The recent drop in silver prices has raised concerns throughout the industry, with Coeur d'Alene far from the only mining stock to suffer a huge drop in value. Nevertheless, until precious metals prices stabilize, investors may well remain reluctant to buy shares of Coeur d'Alene.
For Coeur d'Alene to keep improving, it needs to keep boosting its profit margins and look to minimize costs. In the long run, when it makes sense to pay a dividend, Coeur d'Alene could well find itself a lot closer to perfection in the years ahead.
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.
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At the time this article was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Pan American Silver. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.
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