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The offices of Taseko Mines Ltd. in Vancouver. (DARRYL DYCK/Darryl Dyck/The Canadian Press)
The offices of Taseko Mines Ltd. in Vancouver. (DARRYL DYCK/Darryl Dyck/The Canadian Press)

Schizas’ Mailbag

Don’t hold your breath for Taseko Mines Add to ...

Hi Lou !

What does it mean when TKO has a P/E of 45.66, and a forward P/E of 6.85 ?

Does it mean that the price of TKO is too high now, and that it will be a bargain tomorrow? Could you explain?

Best regards,

Yves

Hey Yves,

This will be the third time that I have run the charts for Taseko Mines Ltd. The first analysis was published on April 9, 2010 when the shares were trading at $5.52. Jim had bought shares at $3.00 and wanted to know how to proceed. It was recommended that he protect his profits and take some money off of the table. By July of 2010 the shares tumbled to $3.50.

The second time I examined the case for TKO was on Nov. 26, 2010 when the shares closed at $4.67. Stan had given me the assignment and it was suggested that he hold onto the shares. Retrospectively that was the right call as the shares advanced to $6.25 by the end of February 2011.

Now to your specific question as to the price earnings ratio of 45.66 and the forward price earnings ratio of 6.85 and what that means for the stock price. The price earnings ratio is calculated by dividing the price of the shares by the earnings per share. In your analysis the price of the shares would have to fall to $0.41 to drive a PE of 6.85. A more likely outcome would be for an increase in earnings as the results of increased production. The forecast for the Gibraltar Mine in British Columbia is a doubling of copper output to 180 million pounds of copper and a tripling of molybdenum yield to 3 million pounds by 2013.

The licensing problems with their New Prosperity deposit has already been baked into the price so I don’t believe that will stimulate more selling in the immediate future. The project had been approved by the provincial government but then got stalled on environmental concerns by the federal government. Their most recent draft application was sent back with a stern tone from the regulator. If nothing else the rebuke will get the company focused on what it will take to bring the seventh largest undeveloped copper gold deposit in the world into production.

A review of the charts will provide further evidence of the opportunities and risks associated with the shares of TKO.

The three-year chart indicates that the stock has been struggling with a downtrend since October of 2010. It has caught bounces to the upside over the last two years but you had to be on your game to capture profits given that advances have been explosive but brief. What is apparent is that since May of 2012 the shares have struggled with resistance along the 50-day moving average and has charted a course of lower highs and lower lows for the last three months. The retreat from the spike high of $4.25 in February of 2012 was signalled by the MACD and the RSI which alerted astute investors that momentum was shifting towards selling.

The six-month chart isn’t presenting substantial evidence that the stock is ready to break out of the downtrend it has been in since February. The MACD and RSI are not generating strong buy signals and the resistance along the 50-day moving average is quite evident. TKO has some interesting prospects that could start moving the shares higher but it would be prudent to wait for stronger indications that the selling has abated and buyers have taken control of this stock.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.

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