Up 100% in a year, is this popular FTSE stock becoming a bit of a joke?

Jon Smith flags up a FTSE 250 stock that has been a top performer over the past year, but is one that he’s not sure why there’s so much hype.

| More on:
Smart young brown businesswoman working from home on a laptop

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I always keep an eye on the big movers among FTSE stocks. Any shares that are up 100% or more over the course of a year usually have some good reasons behind it. It could be related to high growth, an acquisition, a transformation, or something else.

But sometimes, a rally can be fuelled by little actual reason and make it overvalued. Here’s one case that I think investors need to watch out for.

Reasons for the jump

I’m talking about Hochschild Mining (LSE:HOC). The performance of the stock has been strong and does have some fundamental reasons behind it that can be flagged up.

The company focuses on the exploration, mining, processing, and sale of gold and silver in the Americas. Therefore, the price of gold and silver heavily impact the performance of the business. Particularly over the past six months, both precious metals have soared in value. Silver recently hit the highest price since 2021, with gold going one step further and hitting all-time highs last month.

Further, the first Brazilian operation gold mine for Hochschild successfully came online in March. It has the potential to produce between 83,000 and 93,000 ounces of gold a year. If this can indeed be achieved, the revenue benefit could be large.

Due to the jump in the share price following this news, I think some investors are already building expectations of this in their minds.

A bit of hot air

Some think that the stock is becoming a bit of a joke. I’m inclined to agree with them, based on a few factors.

The boost due to the increase in gold and silver prices is great, but it all depends on production levels. The 2023 report showed that during the year, gold production was down 10% versus 2022, with silver down 14%. It doesn’t really matter what the price is if the company isn’t producing as much as it can!

Another point is the fact that the firm actually lost money in 2023. This is put down to exceptional items, which included impairment charges taken on various different projects. I’m used to seeing impairments on one location, but to have it (in the tens of millions of dollars) on Azuca, Crespo, and San Jose isn’t great. It also had to write down the value of other investments.

Further, I don’t see this as a growth company that is really pushing on with momentum. After posting revenue of $811.39m in 2021, the business has shrunk revenue in the past couple of years. It’s now down to $693.72m. Granted, new mines and projects can help to raise revenue going forward, but it’s not a great sign for long-term investors.

Bringing it all together

If I wanted to get exposure to a mining stock, I think there are much better options out there. For example, I own shares in Glencore. Hochschild Mining is certainly a hot stock right now. But I don’t really get the reasons for all the hype, so I will be staying away.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith owns shares in Glencore. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Growth Shares

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

1 iconic FTSE 250 stock I’d snap up for my ISA in June

This Fool highlights a well-known FTSE 250 share that's served up some mouthwatering returns over the past decade.

Read more »

Investing Articles

Here’s my forecast for the Rolls-Royce share price in 2024

As it continues to hit new highs, everybody seems to be asking the same question: can the Rolls-Royce share price…

Read more »

Investing Articles

Here’s how much I’d have if I’d bought 1,000 shares in this FTSE 100 defence stock 5 years ago

I could have made a pretty penny investing in this leading FTSE 100 defence stock. Now I’m looking at a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Where on earth will Nio stock be in 1 year?

Nio stock has demonstrated extraordinary volatility over the past 12 months, but where will it be in a year's time?…

Read more »

Mature black couple enjoying shopping together in UK high street
Investing Articles

Potentially 34% undervalued, should I be watching the boohoo share price?

The boohoo share price has seen a rocky few years, but with signs that the economy is improving, could this…

Read more »

Investing Articles

Is the Amazon share price primed for a drop?

The Amazon share price has been on a tear for the last year, but can this trend continue? Gordon Best…

Read more »

artificial intelligence investing algorithms
Investing Articles

Should I buy Tesla stock for its ‘unused computing power’ and not the EVs?

At 71 times forward earnings, Tesla stock's valued like a technology or AI company. So why is this, and should…

Read more »