Orocobre Ltd [ASX:ORE] is a lithium miner. They predominately mine in Argentina. Like many lithium stocks, ORE had a great year in 2016. The stock climbed 96.96%.
But the stock has recently fallen on hard times. Investors are showing ORE the love they once did. ORE has dropped 39.4% year-to-date. And this morning, the stock dropped more than 4%, to $2.74.
What happened to the Orocobre share price?
Today, ORE announced a US$13.9 million debt repayment. Sales de Jujuy SA, the operating company of the Olaroz Lithium Facility (owned by ORE), paid their six-monthly principle and interest to creditors. The payment totalled US$13.9 million.
ORE now has US$155.2 million left to pay.
What now for ORE shares?
Why would ORE’s share price go down after paying down debt? Common sense would suggest the share price should increase. The company has reduced their liabilities and improved the longevity of the business.
But investors were likely more concerned with ORE’s valuation. The stock has a price-to-earnings ratio of 56.38-times. That means, if earnings remain constant, shareholders will receive their initial investment in 56.83 years. It’s far higher than the industry average of 18.99.
Investors have likely opted to look at cheaper lithium miners for the meantime.
Junior Analyst, Money Morning
PS: We likely won’t see another turnaround in resources like we did in 2016. And if we do, it could be a while. Unless commodity prices suddenly move higher, earnings will likely stagnate.
That’s why some investors prefer the smaller end of the market.
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