Should Investors Book Profit in This Basic Material Stock – MND

Mandalay Resources Corp. (TSX: MND) is a Canadian-based natural resource Corporation with producing assets in Australia and Sweden, and care and maintenance and development projects in Chile and Canada.

Why should Investors Book Profit?

• Weak liquidity profile: In FY2021, the company's current ratio was 1.46x compared to the industry median of 2.51x, while the quick ratio stood at 1.16x compared to the industry median of 1.49x. These lower ratios against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.

• Higher average collection period: MND is having a higher average Accounts Receivable day of 48.2 days, against the industry median of 32.1 days in FY 2021. A higher average collection period indicates that the organization is collecting its payments at a slower pace. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations.

• Long Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry in Q4 2021, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 96.9 days compared to an industry median of 52.0 days.

• Exhausted technical indicators: Recently, the stock witnessed a healthy rally on the daily price chart and has moved near the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the stock is testing its historical resistance.

     Source: REFINITIV, Analysis by Kalkine Group

 Valuation Methodology (Illustrative): EV to Sales

*1USD=1.25CAD

Analysis by Kalkine Group

Stock recommendation

In FY 2021, the company accomplished important financial milestones, including a 28% year-over-year increase in sales to a new high of USD 229.4 million at year's conclusion, with over USD 18 million in free cash flow. However, its liquidity ratios are lower than the industry median, exhibits the extreme pressure on the company. Moreover, it also has a prolonged Cash Cycle (Days) and higher average A/R days compared to the industry median, which may create a difficulty for the company to have enough cash on hand to meet their financial obligations. Even the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the last closing price of CAD 3.27 on March 28, 2022. 

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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