In today’s article, I’ll take a look at three very different growth companies. Are these popular growth stocks a buy in today’s market?
Amara Mining
Ivory Coast gold miner Amara Mining (LSE: AMA) is on a roll. The firm’s shares have gained 30% in 2016 and are up by 14% today, following the publication of Amara’s optimised pre-feasibility study for the Yaoure gold project.
By focusing on a smaller area of high-grade ore, Amara has improved the commercial appeal of this project. According to the firm, a gold price of $1,200/oz. would give Yaoure a post-tax net present value of $281m. In other words, post-tax profits over the lifetime of the project would be $281m.
Amara says that the all-in sustaining cost of mining Yaoure would be just $667 per ounce, and that at $1,200/oz., the initial investment needed to develop the mine would be repaid in just 2.1 years.
Amara has net cash and — in my view — good management. Today’s report confirms the commercial appeal of Yaoure. At 10p per share, I believe that Amara could still be a very profitable buy.
Rightmove
Over the last year, Rightmove (LSE: RMV) increased its share of property search web traffic to 77%, up from 74% in 2014. Rightmove actually appears to have benefited from the launch of the estate agency-backed competitor, OnTheMarket.com.
Today’s final results show that Rightmove’s revenue rose by 15% to £192.1m in 2015, while earnings per share rose by 17% to 114p. Rightmove’s dividend was given a 23% boost to 27p.
These results give Rightmove a trailing P/E of 33 and a yield of 0.7%. These aren’t obviously attractive, but Rightmove’s key attraction is that it’s insanely profitable. Today’s results show that the group’s underlying operating margin was 75.1% last year.
Virtually all of Rightmove’s revenue is converted into free cash flow. The group returned £112.5m — more than half its total revenue — to shareholders last year, via dividends and share buybacks. Despite this, net cash was held steady at about £12m.
In my view, this increasing focus on shareholder returns could deliver further gains for investors.
88 Energy
Small cap oil stock 88 Energy (LSE: 88E) has risen by more than 400% so far in 2016.
The firm has a 272,000 acre shale play in Alaska. Initial testing of the Icewine #1 well has suggested that this well may have hit a “thermal maturity sweetspot”. Translated, this means that the well appears to have the potential to produce low viscosity oil at a “material rate”.
However, it’s early days. 88 Energy needs to raise more cash to fund seismic surveys and further drilling. The firm is currently benefiting from Alaska’s tax code, which allows up to 85% of exploration expenses to be rebated in cash. However, these rebates are set to fall in July 2016, so 88 Energy is racing against time to get this work done before its costs rise.
We also don’t know what the likely break-even cost of production would be from this acreage. Anything over $30 is likely to struggle for funding, in my opinion.
88 Energy is a high-risk speculative stock. The shares could rise or fall sharply from here, in my view, but I’d certainly take some profits if I was a shareholder.