Thursday, July 12, 2007

SWC and PCU Compared: Both 20 Baggers!

The copper mining stock PCU closed on Mar 31,2003 at $14.60, which is dividend and split adjusted $5.14. Four years later PCU closed today at $109. That's a 20 bagger in 4 years.

I compare SWC of today with PCU of 4 years ago, and find there are lots of similarities.

On Mar. 31, 03, the market cap of PCU was $14.60 * 80M shares = $1.168B. Today, SWC has a market cap of $1.11B. Similar size.

In Q1, 2003 PCU sold 198.7M pounds of copper, sold at $0.76 per pound, total copper sales revenue was $151M. The stock price/sales ratio was 1.93. Less than 2.0. In Q1, 07, SWC sales revenue was $146M. The stock price/sales ratio is 1.90. Both stock has similar sales revenue, similarly low price/sales ratio of less than 2.0.

In Q1, 2003 PCU made a slim profit of $18M, which is a very small fraction of the sames revenue. So the profit margin of PCU was very thin, same is true for SWC, which hardly makes any money from its huge sales revenue.

But if the underline commodity is bullish, you could never judge the value by the low profit margin. Once the metal price goes up, the profit margin immediately goes up. Copper went from $0.76 to recent $3.60 a pound, slightly more than quadrupled. So when the commodity quadrupled, the PCU stock price gained 20 folds.

SWC today stands where PCU stood 4 years ago. SWC could well be the next PCU and gain 20 folds in the next four years. All it takes is for palladium price to quadruple, just like copper price quadruple. I think I have made a very solid case why palladium price outlook is super bullish. see my previous blog entries, and here, and here. Pallalunar

Note: David posted a good question, as copper went from $0.76 to $3.60, palladium also went from $142 to near $400. Why PCU boomed and SWC did not? Simple answer is before copper reach $0.76, copper mining was not profitable so PCU was flat before 2003, once copper reached that profitable threshold of $0.76 it really start to take off! For SWC, the profitability threshold is not at palladium $142, but at palladium price being $339. Last quarter SWC had a slight loss of one cent per share. So SWC should start to take off here because this is the threshold where SWC starts to make money. In the past when palladium was much lower, SWC was protected by palladium hedge sales contracts which guaranteed a floor price of $339-ish for more than 80% of the production. Those hedge put a palladium ceiling price at $1000 and limits 20% of the SWC production. We are far from hitting that ceiling yet and even when we do only 20% of the production will be hurt. See Q1,2006 quarterly report, page 12 and 13 for details of those hedges.

2 comments:

Stockdoctor said...

I like SWC and it has shown a lot of potential in past. Of course I recommended it on my blog on Jan07 24th when it was $12. It went as high as $16 (~33%) and peaked in April. I sold my shares after a modest gain but unfortunately this stock has come down back to its $12 territories. I still think this is a good company to invest in LONG term. You wont be disappointed. However, in short to intermidiate term I can not predict much!

Anonymous said...

JJ here!

Always looking for new little boys!!