Eldorado Gold Corporation (NYSE:EGO) shares are down more than -51.35% this year and recently increased 5.20% or $0.04 to settle at $0.70. Hecla Mining Company (NYSE:HL), on the other hand, is down -35.52% year to date as of 11/01/2018. It currently trades at $2.56 and has returned 4.49% during the past week.
Eldorado Gold Corporation (NYSE:EGO) and Hecla Mining Company (NYSE:HL) are the two most active stocks in the Gold industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect EGO to grow earnings at a 5.00% annual rate over the next 5 years.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. EBITDA margin of 30.1% for Hecla Mining Company (HL). EGO’s ROI is -1.40% while HL has a ROI of 0.70%. The interpretation is that HL’s business generates a higher return on investment than EGO’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. EGO’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, HL’s free cash flow per share was +0.01. On a percent-of-sales basis, EGO’s free cash flow was -0.02% while HL converted 0% of its revenues into cash flow. This means that, for a given level of sales, HL is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. EGO has a current ratio of 6.30 compared to 3.30 for HL. This means that EGO can more easily cover its most immediate liabilities over the next twelve months. EGO’s debt-to-equity ratio is 0.17 versus a D/E of 0.37 for HL. HL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
EGO trades at a forward P/E of 139.14, a P/B of 0.16, and a P/S of 1.18, compared to a forward P/E of 44.14, a P/B of 0.68, and a P/S of 2.08 for HL. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. EGO is currently priced at a -64.65% to its one-year price target of 1.98. Comparatively, HL is -35.52% relative to its price target of 3.97. This suggests that EGO is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. EGO has a beta of 1.31 and HL’s beta is 0.39. HL’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. EGO has a short ratio of 4.76 compared to a short interest of 4.04 for HL. This implies that the market is currently less bearish on the outlook for HL.Summary
Hecla Mining Company (NYSE:HL) beats Eldorado Gold Corporation (NYSE:EGO) on a total of 8 of the 14 factors compared between the two stocks. HL is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, HL has better sentiment signals based on short interest.