Alio Gold (ALO) - Gold, the Alternative to Bitcoin
This blog post will be different for a couple of reasons. It covers Alio Gold in the first part, then provides a few, broader concepts underlying precious metals investing.
Part I
Alio Gold is a small gold mining and exploration company, primarily explores for gold deposits. The company holds a 100% interest in the Ana Paula Property in Guerrero, Mexico.
I first came across Alio back in late 2015, when it was known as Timmins Gold. The stock was crashing and eventually dipped to $.07. This was an insane bargain, if one assumed gold wasn't going to $900 and also trusted the majority of financial disclosures provided by the company.
Note: The 2-year low isn't really $.07 due to stock adjustments, improved exchange listing and the name change.
Looking at the 6-month chart, $3 has support with heavy volume. I noticed this a few days ago and thought I would have time to get this post up before it moved. Either way, movements in Bitcoin, which is experiencing a collapse this week and Alio still make this a timely post.
On positive exploration news, Alio crossed its 50 DMA on strong volume.
The ratios of Alio Gold appear very healthy.
Price/Book $.79 with nearly $70m in cash
Price/Cash Flow 5.2
Forward P/E 6.8
EV/EBITDA 2.5
To summarize, almost every key financial ratio far exceeds the industry average from a value investing perspective. The reverse way of look at this is that the market is not awarding Alio with a higher multiple.
This is not a buy or sell recommendation and always perform your own due diligence before considering investing in stocks.
Part II
Gold and gold stocks carry a certain stigma in the investment community. One may think of permabears Peter Schiff or Marc Faber touting the demise of fiat currencies as central banks continue leveraging their might and artificially extend the business cycle to infinity.
Its difficult to hold true to a contrarian view of waiting for a correction, especially if the rewards on the other side of the trade are heavily rewarded. In a panic, even metals may decline as wide-spread deleveraging impacts can impact all asset classes.
Gold investing carries its own set of pitfalls. Anyone considering investing in precious metal mining companies, directly in the physical metal, or some form of derivative play, should learn some of the basic drivers of performance. Although commodity prices are a large component, there are many factors.
A couple areas that commonly surprise new entrants:
If investing in a company, check out where their mining operations are located. Many times you'll find poorer countries where government permitting is dicey. Abrupt halts or lengthy delays destroy short-term profitability.
There are also a multitude of controversies around the gap between physical and paper gold. Some say there is no substitute for owning physical gold, stored in your name, to hedge against an economic downturn or black-swan event. For those trying to claim and take possession of their gold may be quite surprised by the response when attempting to take action by moving or withdrawing their claim. Through Bitcoin, Satoshi Nakamoto's vision is to rid the monetary system of middle-man defrauders. I say believe what you want to believe, any form of investing is risky and shell games do exist.