So much for the usual Black Friday hype.
On Monday – the first full trading day after the Thanksgiving holiday – the NYSE Composite (^NYA) lost 67 points on news that Black Friday holiday sales decreased by 11%.
The post-holiday punch didn’t affect all stocks, however.
Among those to buck the downward move, Buenaventura Mining (BVN) shares popped by 14% on a huge spike in average volume.
In fact, over three million shares changed hands, as investors couldn’t wait to pile into the stock.
After a brutal run, the sudden sharp move has left analysts wondering if the stock has finally found a bottom, or if it’s nothing more than a “dead-cat bounce.”
Let’s find out…
Two Years of Pain
When the Opening Bell rang on January 2, 2013, Buenaventura shares sat at $36.50.
As you can see, though, it’s been nothing but pain ever since, with the stock plunging by 72%.
A look at the company’s financials reveals a mixed bag…
First, the bad news…
In the third quarter, total revenue hit $317.6 million – down 8.1% from Q3 2013.
Gross profit crashed by 31% for the quarter, to $67.3 million.
However, such a poor performance doesn’t seem to have hurt the company’s overall bottom line…
Quarterly net income actually rose by 20.2% – from $65.1 million to $78.3 million. This translates to a healthy net profit margin of 24.6%.
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Furthermore, this boost in net income meant earnings per share also increased. From $0.26 a year ago, EPS now sits at $0.31 – up 19.2%.
At the end of the day, though, investing is about seeing share prices rise. And Buenaventura just doesn’t seem to perform.
This Cat Has Run Out of Lives
Despite the company’s earnings improvements, the stock continues to fall.
The picture is clear: Treat Buenaventura as a dead cat.
- U.S. investors shook off their turkey-induced comas with dismal economic news.
- U.S. holiday sales plummeted by 11% over Black Friday weekend.
- China’s PMI missed expectations for the second straight month and now sits at an eight-month low.
- Europe’s PMI of 50.1 in November is now half a point below its October reading – a clear indication that Europe continues to weaken. Germany, the region’s strongest economy, just had its November PMI revised down half a point to 49.5.
Now, you might think that inflation fears would justify a bullish stance in precious metals (especially gold) – and precious metals mining companies like Buenaventura.
Not in this case.
You see, while the economy will weaken through 2015, an ongoing decline in oil prices will have a significant deflationary effect.
In turn, overall commodity prices should continue to weaken, putting further pressure on central banks to continue their stimulus plans.
And this will inflict more stress on cyclical stocks like miners, metal producers, and energy producers.
So while Buenaventura shares have bounced, this dead cat has run out of lives.