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Don't wait for a light to appear at the end of the tunnel, stride down there and light the bloody thing yourself. --Author unknown

We are going to examine five growth plays in detail, and many important key ratios will be covered in this article; investors would do well to get a handle on some of these ratios, as they could prove to be very useful in the selection process. It could make the difference between choosing a winner or a loser. We will start of by listing our favorite play and provide some reasons for this choice, and then we will cover some of the more important ratios.

We like ElDorado Gold Corp (EGO) for the following reasons:

  • A good levered free cash flow of $201 million
  • A five sales growth rate of 67%
  • A great long-term debt to equity ratio of 0.01
  • Net income has increased from $102 million in 2009 to almost $350 million in 2011; an increase of over 240%
  • EBTIDA has surged from $186 million in 2009 to $641 million in 2011.
  • Gross profits have skyrocketed from $3.6 billion in 2009 to $8.6 billion in 2011.
  • Operating income has jumped from $973 million in 2009 to $2.11 billion in 2011.
  • Cash flow per share has increased from 26 cents in 2009 to 80 cents in 2001.
  • It sports a very strong earnings and quarterly revenue growth rate of 96% and 42% respectively.
  • It has a good current and quick ratio of 2.64 and 1.98 respectively.
  • It sports a very strong interest coverage ratio of 59.
  • The payout ratio is very low at 11%
  • On the high end, EPS is expected to come in at $1.03 in 2012 and rise to $1.11 in 2013.
  • It has a splendid 3 and five year total return of 79% and 144% respectively.
  • It sports a beta of 1.47, which makes it a good candidate for covered writes.
  • 100K invested for nine years would have grown to 924K.

Key ratios/metrics

Long-term debt-to-equity ratio is the total long term debt divided by the total equity. The amount of long-term debt a company carries on its balances sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital which could in the worst case scenario lead to bankruptcy.

Free cash flow yield is obtained by dividing free cash flow per share by the current price of each share. Generally lower ratios are associated with an unattractive investment and vice versa. Free cash flow takes into account capital expenditures and other ongoing costs associated with the day to day to functions of the business. In our view free cash flow yield is a better valuation metric then earnings yield because of the above factor

Enterprise value is a combination of the market cap, debt, minority interests, preferred shares less total cash and cash equivalents. This provides a better picture because it is a more accurate representation of a company's value contrary to simply looking at the Market cap. Individuals searching for other ideas might find this article to be of interest: Is Chimera Investment Corp. A Good Long-Term Investment.

Price to sales ratio is calculated by dividing the company's share price by its revenue per share. Generally, the smaller the ratio (less than 1.0) the better the investment since the investor is paying less for each unit of sales. However, there are exceptions as a company with a low price to sales ratio could be unprofitable. It is sometimes used to determine the relative valuation of a sector.

Price to cash flow ratio is obtained by dividing the share price by cash flow per share. It is a measure of the market's expectations of a company's future financial health. The effects of depreciation and other non cash factors are removed, and this makes it easier for investors to assess foreign companies in the same industry. This ratio also provides a measure of relative value like the price to earning's ratio.

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of 1 year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. For example, if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.

Quick ratio or acid test is obtained by adding cash and cash equivalents plus marketable securities and accounts receivable dividing them by current liabilities. It is a measure of a company's ability to use its quick assets (assets that can be sold of immediately at close to book value) to pay off its current liabilities immediately. A company with a quick ratio of less than 1 cannot pay back its current liabilities. Additional key metrics are addressed in this article: 5 Precious Metals Plays With Excellent Growth Potential.

ElDorado Gold Corp

Industry: Precious Metals

Levered Free Cash Flow: 201.25M

Net income for the past three years

Net Income 2009 = $102 million

Net Income 2010 = $206 million

Net Income 2011 = $347 million

EBITDA 12/2011 = $641 million

EBITDA 12/2010 = $424 million

EBITDA 12/2009 = $186 million

Net income Reported Quarterly = $405 million

Total cash flow from operating activities

2006 = $-22.51 million

2007 = $69.39 million

2008 = $105.56 million

Cash Flow 12/2011 = 0.8 $/share

Cash Flow 12/2010 = 0.57 $/share

Cash Flow 12/2009 = 0.26 $/share

Annual EPS before NRI 12/2011 = 0.58

Annual EPS before NRI 12/2010 = 0.38

Annual EPS before NRI 12/2009 = 0.26

Annual EPS before NRI 12/2008 = 0.24

Annual EPS before NRI 12/2007 = 0.1

ROE = 10.06%

Return on Assets = 8.33%

Quarterly Earnings Growth = 96.8%

Quarterly Revenue Growth = 42.5%

Key Ratios

Price to Sales = 8.69

Price to Book = 2.24

Price to Tangible Book = 3.41

Price to Cash Flow = 16.84

Price to Free Cash Flow = 26.2

Current Ratio 09/2011 = 2.64

Current Ratio 5 Year Average = 3.1

Quick Ratio = 1.98

Cash Ratio = 1.81

Interest Coverage = 58.90

Payout Ratio 09/2011 = 0.11

Payout Ratio 06/2011 = 0.12

Payout Ratio 5 Year Avg 09/2011 = 0.04

Payout Ratio 5 Year Avg 06/2011 = 0.04

Change in Payout Ratio = 0.06

Dividend growth rate 3 year avg = N/A

Consecutive dividend increases = 1 years

Paying dividends since = 2010

Total return last 3 years = 78.98%

Total return last 5 years = 143.95%

Goldcorp Inc (GG)

Industry: Precious Metals

Levered Free Cash Flow: 222.12M

Net income for the past three years

Net Income 2009 = $240 million

Net Income 2010 = $1381 million

Net Income 2011 = $1881 million

EBITDA 12/2011 = $3261 million

EBITDA 12/2010 = $2448 million

EBITDA 12/2009 = $1049 million

Net income Reported Quarterly = $405 million

Total cash flow from operating activities

2008 = $449.6 million

2009 = $1.28 billion

2010 = $1.79 billion

Cash Flow 12/2011 = 3.22 $/share

Cash Flow 12/2010 = 2.2 $/share

Cash Flow 12/2009 = 1.52 $/share

Annual EPS before NRI 12/2011 = 2.22

Annual EPS before NRI 12/2010 = 1.37

Annual EPS before NRI 12/2009 = 0.8

Annual EPS before NRI 12/2008 = 0.56

Annual EPS before NRI 12/2007 = 0.62

ROE = 8.67%

Return on Assets = 6.23%

Quarterly Earnings Growth = -27.7%

Quarterly Revenue Growth = 14.8%

Key Ratios

Price to Sales = 6.72

Price to Book = 1.68

Price to Tangible Book = 1.79

Price to Cash Flow = 13.82

Price to Free Cash Flow = 24.1

Current Ratio 09/2011 = 3.83

Current Ratio 5 Year Average = 2.84

Quick Ratio = 3.08

Cash Ratio = 2.47

Interest Coverage = 78.30

Payout Ratio 09/2011 = 0.25

Payout Ratio 06/2011 = 0.2

Payout Ratio 5 Year average 09/2011 = 0.25

Payout Ratio 5 Year average 06/2011 = 0.25

Change in Payout Ratio = 0

Dividend yield 5 year average = 0.6%

Dividend growth rate 3 year average = 39.47%

Dividend growth rate 5 year average = 23.68%

Consecutive dividend increases = 2 years

Paying dividends since = 2001

Total return last 3 years = 53.23%

Total return last 5 years = 89.76%

IAMGold Corp (IAG)

Industry: Precious Metals

Levered Free Cash Flow : 129.65M

Net income for the past three years

Net Income 2009 = $114 million

Net Income 2010 = $280 million

Net Income 2011 = $843 million

EBITDA 12/2011 = $806 million

EBITDA 12/2010 = $551 million

EBITDA 12/2009 = $377 million

Net income Reported Quarterly = $405 million

Total cash flow from operating activities

2008 = $181.54 million

2009 = $256.96 million

2010 = $415.12 million

Cash Flow 12/2011 = 1.5 $/share

Cash Flow 12/2010 = 1.12 $/share

Cash Flow 12/2009 = 0.99 $/share

Dividend 5 year Growth 12/2011 = N/A

Annual EPS before NRI 12/2011 = 1.08

Annual EPS before NRI 12/2010 = 0.77

Annual EPS before NRI 12/2009 = 0.6

Annual EPS before NRI 12/2008 = 0.36

Annual EPS before NRI 12/2007 = 0.2

ROE = 13.13%

Return on Assets = 10.76%

Quarterly Earnings Growth = 7.7%

Quarterly Revenue Growth = 9.2%

Key Ratios

Price to Sales = 2.97

Price to Book = 1.42

Price to Tangible Book = 1.62

Price to Cash Flow = 8.92

Price to Free Cash Flow = 9

Current Ratio 09/2011 = 4.38

Current Ratio 5 Year Average = 2.64

Quick Ratio = 3.7

Cash Ratio = 3.26

Interest Coverage =98.5

Payout Ratio 09/2011 = 0.22

Payout Ratio 06/2011 = 0.16

Payout Ratio 5 Year Average 09/2011 = 0.17

Payout Ratio 5 Year Average 06/2011 = 0.17

Change in Payout Ratio = 0.05

Dividend yield 5 year average = 0.8%

Dividend growth rate 3 year avg = 71.53%

Dividend growth rate 5 year average = 40.06%

Consecutive dividend increases = 1 years

Paying dividends since = 2001

Total return last 3 years = 89.45%

Total return last 5 years = 82.3%

Agnico-Eagle Mines Ltd (AEM)

Industry: Precious Metals

Levered Free Cash Flow: 366.50M

Net income for the past three years

Net Income 2009 = $87 million

Net Income 2010 = $332 million

Net Income 2011 = $-569 million

EBITDA 12/2011 = $-378 million

EBITDA 12/2010 = $751 million

EBITDA 12/2009 = $252 million

Net income Reported Quarterly = $405 million

Total cash flow from operating activities

2008 = $118.09 million

2009 = $115.11 million

2010 = $483.47 million

Cash Flow 12/2011 = 3.58 $/share

Cash Flow 12/2010 = 2.85 $/share

Cash Flow 12/2009 = 1.41 $/share

Annual EPS before NRI 12/2011 = 1.58

Annual EPS before NRI 12/2010 = 1.29

Annual EPS before NRI 12/2009 = 0.53

Annual EPS before NRI 12/2008 = 0.42

Annual EPS before NRI 12/2007 = 1.05

ROE = 7.38%

Return on Assets = 4.92%

Quarterly Revenue Growth = 3.8%

Key Ratios

Price to Sales = 3.15

Price to Book = 1.78

Price to Tangible Book = 1.62

Price to Cash Flow = 9.34

Price to Free Cash Flow = 10.4

Current Ratio 09/2011 = 3.51

Current Ratio 5 Year Average = 3.88

Quick Ratio = 2.23

Cash Ratio = 1.93

Interest Coverage =4.3

Payout Ratio 09/2011 = 0.41

Payout Ratio 06/2011 = 0.4

Payout Ratio 5 Year Average 09/2011 = 0.29

Payout Ratio 5 Year Average 06/2011 = 0.27

Change in Payout Ratio = 0.12

Dividend yield 5 year average = 0.6%

Dividend growth rate 3 year average = 104.63%

Dividend growth rate 5 year average = 66.78%

Consecutive dividend increases = 1 years

Paying dividends since = 1991

Total return last 3 years = -31.74%

Total return last 5 years = -7.41%

Notes

It would fall under the category good/average with probably more emphasis on Average when compared to the many other stronger plays in this sector.

Harmony Gold Mining Co. Ltd. (HMY)

Industry: Precious Metals

Levered Free Cash Flow: 2.50M

Net income for the past three years

Net Income 2009 = $311 million

Net Income 2010 = $-24 million

Net Income 2011 = $87 million

EBITDA 12/2011 = $16 million

EBITDA 12/2010 = $24 million

EBITDA 12/2009 = $383 million

Net income Reported Quarterly = $405 million

Total cash flow from operating activities

2009 = $254 million

2010 = $210 million

2011 = $340 million

Cash Flow 12/2011 = 0.19 $/share

Cash Flow 12/2010 = -0.05 $/share

Cash Flow 12/2009 = 0.87 $/share

Annual EPS before NRI 12/2011 = 0.19

Annual EPS before NRI 12/2010 = -0.05

Annual EPS before NRI 12/2009 = 0.49

Annual EPS before NRI 12/2008 = -0.26

Annual EPS before NRI 12/2007 = -0.54

ROE = 5.55%

Return on Assets = 4.21%

Quarterly Earnings Growth = 227.9%

Quarterly Revenue Growth = 61.2%

Key Ratios

Price to Sales = 2.37

Price to Book = 1.2

Price to Tangible Book = 1.16

Price to Cash Flow = 57.87

Price to Free Cash Flow = -50.6

Current Ratio 09/2011 = 1.89

Current Ratio 5 Year Average = 1.48

Quick Ratio = 1.05

Cash Ratio = 0.53

Interest Coverage = 1.30

Payout Ratio 09/2011 = 0.14

Payout Ratio 06/2011 = 0.24

Dividend growth rate 5 year average = 0%

Consecutive dividend increases = 0 years

Paying dividends since = -1

Total return last 3 years = 3.31%

Total return last 5 years = -16.02%

Notes

It would fall under the category of average. Net income dropped from $311 million in 2009 to 87 million in 2011. Cash flow per share dropped from 87 cents in 2009 to 19 cents in 2011. Compared to the other plays in this article, it also sports a rather low interest coverage ratio of 1.3.

Conclusion

The markets are extremely overbought right now. Long-term investors would do well to wait for a nice decent pullback before deploying new sums of money into this market. If you are bullish on certain stocks, then you can sell naked put options with strike prices where you would not mind owning the stock. For example, if you like stock XYZ at 25, and it is now trading at 32, then you can sell naked puts with a strike of 25.

Sources: EPS, EPS surprise, broker recommendations, and price and consensus charts sourced from zacks.com. Earning's estimates and growth rate charts sourced from dailyfinance.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com. Earnings Vs estimate charts sourced from smartmoney.com

Source: Review Of 5 Precious Metals Plays Yields 3 Winners

Additional disclosure: This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.