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Building up an investment case requires looking at a stock holistically. Today I've chosen to put the spotlight on Hillgrove Resources Limited (ASX:HGO) due to its excellent fundamentals in more than one area. HGO is a financially-healthy company with a great history of performance, trading at a great value. In the following section, I expand a bit more on these key aspects. For those interested in understanding where the figures come from and want to see the analysis, read the full report on Hillgrove Resources here.
Undervalued with excellent balance sheet
HGO has a strong track record of performance. In the previous year, HGO delivered an impressive double-digit return of 67%. Not surprisingly, HGO outperformed its industry which returned 14%, giving us more conviction of the company's capacity to drive bottom-line growth going forward. With a debt-to-equity ratio of 2.2%, HGO’s debt level is low. Investors’ risk associated with debt is very low and the company has plenty of headroom to grow debt in the future, should the need arise. HGO appears to have made good use of debt, producing operating cash levels of 18.3x total debt in the prior year. This is a strong indication that debt is reasonably met with cash generated.
HGO's shares are now trading at a price below its true value based on its discounted cash flows, indicating a relatively pessimistic market sentiment. Investors have the opportunity to buy into the stock to reap capital gains, if HGO's projected earnings trajectory does follow analyst consensus growth, which determines my intrinsic value of the company. Compared to the rest of the metals and mining industry, HGO is also trading below its peers, relative to earnings generated. This further reaffirms that HGO is potentially undervalued.
Next Steps:
For Hillgrove Resources, I've compiled three essential factors you should look at:
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Future Outlook: What are well-informed industry analysts predicting for HGO’s future growth? Take a look at our free research report of analyst consensus for HGO’s outlook.
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Dividend Income vs Capital Gains: Does HGO return gains to shareholders through reinvesting in itself and growing earnings, or redistribute a decent portion of earnings as dividends? Our historical dividend yield visualization quickly tells you what your can expect from HGO as an investment.
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Other Attractive Alternatives : Are there other well-rounded stocks you could be holding instead of HGO? Explore our interactive list of stocks with large potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.