Gold Resource Corp: A Minority Report Part II - Quantitative Analysis

<< Read Part 1: The Investment Case For Gold Resource Corp.: A Minority Report

I. Introduction

In March 2015, this author had written an article titled The Investment Case For Gold Resource Corp.: A Minority Report. The thesis is still the same: the company (GORO) has very attractive valuations in a market that is forming a bottom. Except there is one big difference: the stock is about 75 cents cheaper than when was recommended. And as Warren Buffet and other great value investors have taught their students - when a high quality company drops in price, that is the best situation possible as one can gobble up shares at a discount. 

The numbers bolster this thesis.

II. The Valuations

(Source: GuruFocus Website)

The following valuations were derived from the calculations of Gurufocus.com, a value investing platform and research hub. The metrics are dated as of March 2015 (it is also important to note that in May 2015 that Gold Resource Corp (GORO) reported net income of slightly over $5 million or .09 cents per share. 

First - Return on Invested Capital (Joel Greenblatts 'Magic Formula):

Return on Capital (Joel Greenblatt)
93.38% (As of Mar. 2015)
Joel Greenblatt defined Return on Capital differently in his book The Little Book That Still Beats the Market (Little Books. Big Profits). He defines Return on Capital as EBIT divided by the total of net fixed assets and net working capital. Gold Resource Corp's annualized return on capital (Joel Greenblatt) for the quarter that ended in Mar. 2015 was 93.38%. GORO's Return on Capital - Joel Greenblattis ranked higher than 
98% of the 1253 Companies in the Global Gold industry. 

Second - Gross Margin Percentage:

Gross Margin
49.43% (As of Mar. 2015)
Gross Margin is calculated as gross profit divided by its revenue. Gold Resource Corp's gross profit for the three months ended in Mar. 2015 was $14.0 Mil. Gold Resource Corp's revenue for the three months ended in Mar. 2015 was $28.4 Mil. Therefore, Gold Resource Corp's Gross Margin for the quarter that ended in Mar. 2015 was 49.43%.

Third - Earnings Yield (Joel Greenblatt):

Earnings Yield (Joel Greenblatt)
19.76% (As of Mar. 2015)
Gold Resource Corp's enterprise value for the quarter that ended in Mar. 2015 was $148.4 Mil. Gold Resource Corp's Earnings Before Interest and Taxes (EBIT) for the trailing twelve months (TTM) ended in Mar. 2015 was $29.3 Mil. Gold Resource Corp's Earnings Yield (Joel Greenblatt) for the quarter that ended in Mar. 2015 was 19.76%. GORO's Earnings Yield (Joel Greenblatt) is ranked higher than 
94% of the 1246 Companies in the Global Gold industry. 

Fourth - Return On Asset:

Return on Assets
17.74% (As of Mar. 2015)
Return on assets is calculated as net income divided by its average total assets. Gold Resource Corp's annualized net income for the quarter that ended in Mar. 2015 was $20.2 Mil. Gold Resource Corp's average total assets for the quarter that ended in Mar. 2015 was $114.0 Mil. Therefore, Gold Resource Corp's annualized return on assets (ROA) for the quarter that ended in Mar. 2015 was 17.74%.

Fifth - Return On Equity:

Return on Equity
21.89% (As of Mar. 2015)
Return on equity is calculated as net income divided by its average shareholder equity. Gold Resource Corp's annualized net income for the quarter that ended in Mar. 2015 was $20.2 Mil. Gold Resource Corp's average shareholder equity for the quarter that ended in Mar. 2015 was $92.3 Mil. Therefore, Gold Resource Corp's annualized return on equity (ROE) for the quarter that ended in Mar. 2015 was 21.89%.

Sixth - Price-to-Earnings Ratio (P/E):

P/E Ratio
9.01 (As of Today)
As of today, Gold Resource Corp's share price is $2.36. Gold Resource Corp's diluted earnings per share for the trailing twelve months (TTM) ended in Mar. 2015 was $0.26. Therefore, Gold Resource Corp's P/E ratio for todayis 9.01.

- important to note that a P/E ratio below 10 is considered cheap. 

Seventh - Dividend Yield:

Gold Resource Corp (AMEX:GORO)

Dividend Yield
4.66% (As of Today)
As of Today, the Trailing Annual Dividend Yield of Gold Resource Corp is 4.66%.

- important to note that with the margin of safety GORO offers, investors are getting paid rent on their money i.e. dividend to subsidize their risk while the company works during this gold equity market. It is about 2x what one would get from the U.S. treasury (2.30%).

Eighth - Debt to Equity:

Debt to Equity
0.02 (As of Mar. 2015)
Gold Resource Corp's current portion of long-term debt for the quarter that ended in Mar. 2015 was $1.5 Mil. Gold Resource Corp's long-term debt for the quarter that ended in Mar. 2015 was $0.4 Mil. Gold Resource Corp's total equity for the quarter that ended in Mar. 2015 was $94.6 Mil. Gold Resource Corp's debt to equity for the quarter that ended in Mar. 2015 was 0.02.

Ninth - Inside Ownership:

Insider Ownership
10% (As of Today)
Insider ownership is the percentage of shares that are owned by company insiders relative to the total shares outstanding. As of today, Gold Resource Corp's insider ownership is 10%.

And last but not least for all the gritty value investors out there - The Benjamin Graham Number:

Graham Number
$3.27 (As of Mar. 2015)
Graham Number is a figure that measures a stock's fundamental value by taking into account the company's earnings per share and book value per share. The Graham number is the upper bound of the price range that a defensive investor should pay for the stock. According to the theory, any stock price below the Graham number is considered undervalued, and thus worth investing in.

As of today, the stock price of Gold Resource Corp is $2.36. Gold Resource Corp's graham number for the quarter that ended in Mar. 2015 was $3.27. Therefore, Gold Resource Corp's Price to Graham Number ratio for today is 0.72.

The above is important to note that Benjamin Graham himself through his own timeless valuation metric would find that GORO has a strong margin of safety of well under a dollar its intrinsic value.

III. Conclusion

The numbers tell us that GORO is not only profitable, but an industry leader with a heavy margin of safety, very attractive balance sheet, and a powerful dividend. And these are just the quantitative numbers. Please refer to the article linked in the first sentence of this essay for an in-depth analysis of GORO's projects and qualitative factors (mine grades, management, growth potential, etc).

On one end of the spectrum the contrarians will flock to this company during the great bear market in gold equities and on the other end the value investors will see the blatant impressive valuations.

Picking up dollars for pennies, as the old adage says.