Karora Resources (KRRGF)* $3.22
- KRRGF trades at about 5 to 6 times trailing earnings – cheap.
- Karora was a cash generating machine that in 2020. Cash went from a “Net Cash” position of Minus 8 million USD to a Plus 79 million USD from year-beginning to year-end.
This week, Karora announced their expectation to double revenue in the next three years (linked below). Nowhere in the press release did they discuss earnings or cash flow. We believe that cash flow and earnings can grow faster than revenue. “If” margins remain as they are today, and the P/E remains the same (5 to 6 times trailing earnings) then we can expect the stock price to double in three years. Excellent return in a very stable environment. NOTE: Karora does not need to raise cash or new financing to make the above happen.
Here is the “However”.
However,
- if the price of gold rises – revenue goes up faster than the numbers the company mentions.
- If the price of gold rises – profit margins expand (high fixed costs/low variable costs in mining), and earnings and cash flows expand faster than revenue.
- If the price of gold rises and Karora executes its plan, there is the potential for the market to reward Karora with a higher valuation (P/E ratio) than the current numbers. Therefore, we can envision Karora stock rising by more than a double in the next three years.
Most analysts expect the price of gold to rise over the next three years. If gold does not rise and in fact retreats, then of course the opposite of above happens.
However,
- If the gold price does retreats, Karora is still a very healthy company and is not in financial risk of insolvency. They still hold Gold and Nickel reserves in the ground. The cost to produce and replace gold reserves is projected to be about 50% of the current $1,790 price of gold.
Karora is a core holding and used as “reserve currency” for our managed portfolios. Such is our confidence in Gold/Karora Vs Cash.
Karora is a boring, but high probability stock price double or more, in the next two to three years, LOTM.
PRESS RELEASE:
Karora Announces Three Year Production Guidance and Organic Growth Plan to Double Gold Production to 185,000 – 205,000 oz by 2024 dated: June 28, 2021.
Technically Speaking about Karora:
See six month chart below.
Karora has been consolidating its recent rally from $2.25 to $3.88.
The stock price is slightly below its 21 day and 50-day moving averages. Normally we would be more cautious with the price below these moving averages. The reason we take this view are:
- The price is still above its longer-term moving average – the 150 MA.
- The MACD appears very close to a cross-over buy signal.
- CMF us showing very strong accumulation of this correction.
- Not technical, but very strong Fundamental performance is building cash, low P/E ratio of 5 to 6, and the outstanding two to three year outlook.
- High probability that gold and nickel prices will move higher. This, due to fait currency debasement globally as is the case for gold and a high demand / low supply in the case of nickel use in batteries.
Six month Chart:
Two Year Weekly Chart:
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* An account related to LOTM holds a position in this security.
Neither LOTM nor Tom Linzmeier is a Registered Investment Advisor.
Please refer to our web site for full disclosure at www.LivingOffTheMarket.com ZTA Capital Group, Inc.
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