Entering 2024, gold confronted headwinds attributed to a strengthened U.S. dollar. However, it demonstrated resilience, sustained by the prevailing belief that the Federal Reserve is poised for interest rate cuts this year. Heightening the precious metal's steadfastness, escalating concerns about attacks on shipping in the Red Sea contributed to its ability to weather external pressures.

With high hopes for gold prices to soar this year, this article sheds light on the fundamentals of Gold Royalty Corp. (GROY), a gold-focused royalty company offering creative financing solutions to the metals and mining industry. Let’s understand in detail. 

Despite the prevailing industry tailwinds and several strategic acquisitions, GROY faced a setback in its fiscal third-quarter (ended September 2023) results. The company experienced a decline in top-line growth and incurred losses, signaling a challenging period in spite of the promising industry outlook.        

Moreover, Wall Street anticipates that the company will continue to report negative earnings per share for the quarter that ended December 2023 and the quarter ending March 2024, respectively.

On top of it, the dynamics of institutional investment in GROY have seen recent shifts. Of the 59 institutional holders, 24 have opted to reduce their positions in the stock, and 12 holders have entirely liquidated their positions. This indicates a changing sentiment among institutional investors regarding their stake in GROY.

In terms of price performance, GROY’s shares have plunged 23.1% over the past six months and 12.5% over the past month to close the last trading session at $1.40.

Here are the factors that could affect GROY’s performance in the near term:

Weak Financials

For the fiscal third quarter that ended on September 30, 2023, GROY’s revenue plunged 8.7% from the year-ago value to $797 thousand, while the company’s operating loss for the period amounted to $1.77 million. During the same quarter, the company’s adjusted net loss came in at $1.09 million and $0.01 per share, respectively.

Moreover, the company’s cash and cash equivalents amounted to $3.35 million, down 43.2% compared to $5.85 million as of December 31, 2022.

Poor Profitability

The stock’s trailing-12-month negative Return On Total Capital (ROTC) of 2.51% compares to the 5.47% industry average. Its trailing-12-month cash per share of $0.02 is 98.5% lower than the industry average of $1.56. Furthermore, GROY’s trailing-12-month asset turnover ratio of 0.01x is 98.8% lower than the 0.70x industry average.

Dimmed Analyst Estimates

Street expects GROY’s revenue for the fiscal year that ended December 2023 to decline 12.2% year-over-year to $3.51 million. Meanwhile, the consensus EPS estimate of negative $0.05 for the same period reflects a 42.9% year-over-year improvement.

High Valuation

In terms of forward Price/Sales ratio, GROY is trading at 58.93x, significantly higher than the industry average of 1.23x. Furthermore, its forward EV/Sales multiple of 62.86 compares to the industry average of 1.62x.

POWR Ratings Exhibit Bleak Prospects

GROY’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, translating to a Sell in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GROY’s D grade for Quality is consistent with its lower-than-industry profitability. In the Miners - Diversified industry, GROY is ranked #25 out of the 38 stocks.   

Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, Sentiment, and Stability. Get all ratings of GROY here.

Bottom Line

Despite the industry tailwinds, GROY faces challenges such as weak financial performance, poor profitability, and an elevated valuation. These factors collectively cast a cautious shadow on the outlook for the stock’s future performance. Thus, avoiding investment in GROY may be prudent for investors now.  

How Does Gold Royalty Corp. (GROY) Stack Up Against Its Peers?   

While GROY has an overall grade of D, equating to a Sell rating, you may also check out these other stocks within the Miners - Diversified industry: Champion Iron Limited (CIAFF), Calibre Mining Corp. (CXBMF), and Amerigo Resources Ltd. (ARREF), with a B (Buy) rating. For exploring more Miners - Diversified stocks, click here.   

What To Do Next?

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GROY shares were trading at $1.40 per share on Friday afternoon, down $0.01 (-0.36%). Year-to-date, GROY has declined -4.76%, versus a -1.57% rise in the benchmark S&P 500 index during the same period.

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.

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