1 FTSE 250 stock that people are buying hand over fist

Jon Smith analyses a mining stock from the FTSE 250 that has more than doubled in price over the past year, but questions whether he should buy now.

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I’m always interested to see stocks that have strong momentum behind them, as it shows that people are actively buying. I look for growth shares that have gained both in the past year, but also over the past month, to give an indication of what’s hot right now. Of course, the likes of Nvidia popped up on my screener, but also a FTSE 250 stock that has got less attention.

A miner in focus

I’m talking about Hochschild Mining (LSE:HOC). The FTSE 250 name has shot up by 131% over the past year, with 24% of this coming in just the past month.

Before we get to the reasons why people are buying it right now, I need to get a picture of the company. The firm focuses on the exploration, mining, processing, and sale of gold and silver. It operates three mines, with the flagship one being in the Ayacucho region in southern Peru.

Benefitting from commodity prices

Straight off the bat, I can see one reason why the stock has outperformed over the past year. The prices of precious metals has rocketed higher over this period. For example, gold hit fresh all-time highs earlier this quarter. Silver too is up almost 20% over the past year.

Naturally, the gold and silver that is mined by Hochschild gets sold on the market. So an increase in the price of these metals is great for business. It can achieve a higher selling price without having to produce more than in the past.

New project coming online

Another factor that has helped the business is progress with new projects. Earlier in the year, it stated that the Mara Rosa mine would soon be ready to commence commercial production.

Last month, it confirmed this was a reality, doing so ahead of schedule. I’ve seen so many other companies in the same area have to push back the timeframes of new projects and mining potential. So for one to come in ahead of plan is a big deal.

Hochschild expects the mine to produce between 83,000 and 93,000 ounces of gold this year. If realised, this would add a decent chunk of production for the business overall. Although this will only likely yield financial benefits into next year, investors are clearly optimistic about the future.

Reasons for caution

Things aren’t all smooth sailing. The business lost money in 2023, blamed on exceptional items. This included impairment charges taken on various different projects. Further, production for the full year was down, both in gold and silver.

With the sharp rise in the share price, I think investors might have got a bit carried away here. Don’t get me wrong, the Mara Rosa mine could be a big winner. But the share price seems a bit high given the lower production and disappointing financial results. Further, the rise in precious metal prices is an external factor and isn’t the result of anything the company has done.

I’m going to not follow the crowd here and will instead sit on my hands, to see where this goes over the next couple of months.

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 has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. 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.

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