Capstone Mining Corp

Capstone Mining Corp (TSX: CS) is a mineral exploration, development, and mining company based in the Americas. The company has mines in operation in the United States, Mexico, and Canada, as well as development projects in Chile and Canada. Its primary emphasis is on copper, but it also produces zinc, lead, molybdenum, silver, and gold.

Why Should Investors Book Profit?

• Sequentially Degrading Margins: The company failed to maintain its pace on a sequential basis, resulting in a weaker operational matrix. Its key margin profile is showing signs of distress, indicating that the company is losing its edge.

Source: REFINITIV, Analysis by Kalkine Group

• Weak Liquidity Profile: In Q3FY21, the company's quick ratio was 1.23x compared to the industry median of 1.51x, while the current ratio stood at 1.51x against the industry median of 2.59x. These lower ratios against the industry indicate that its short-term obligations are growing faster than its resources to cover them, which is not a good sign.
• Stretched Valuations: The stock of CS is available at an NTM Price/Cash Flow multiple of 5.7x compared to the industry (Metals & Mining) median of 2.2x. It is trading at 8.2x NTM P/E multiple compared to the industry median of 2.0x. This implies that the shares are overvalued against the industry.
• Exhausted Technical Indicators: On the daily price chart, the stock has recently experienced a good rally and has moved close to the upper band of the Bollinger band, indicating that the company is possibly overbought and due for a price correction or consolidation. The stock has also re-touched its previous resistance level, which it had attempted but failed to breach. As a result, there's a good chance that the prices will consolidate or fall.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation

The recent surge in commodity prices is benefiting the company, and we can observe a considerable influence on its balance sheet due to this trend. However, on the other hand, it failed to keep up with the pace in a sequential manner, resulting in lower profit margins, indicating that the organization is a little stressed. Furthermore, its liquidity ratios are lower than the industry median, showing a weak liquidity profile. Finally, 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 closing price of CAD 5.97 on December 01, 2021.

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.