Is Sirius Minerals plc a millionaire-maker stock?
This year has been another period of great uncertainty and volatility for Sirius Minerals(LSE: SXX). The company's share price has been up by as much as 78% since the start of the year as investors have become increasingly bullish about its prospects. However, in the last three months it has fallen by more than 20% as investor sentiment has declined.
This volatility looks set to continue in future. The company's outlook remains highly uncertain and driven by news flow. However, irrespective of its volatile share price outlook, could it offer millionaire-maker potential?
The investment opportunity for the stock appears to be compelling. The mine it is now in the process of constructing is intended to have a 100-year life and expects to eventually produce around 20m tonnes of polyhalite per year (Mtpa). This will be made available across a wide range of markets, which means securing orders for the product is unlikely to prove challenging. That's particularly the case since crop studies have thus far been positive and demand for fertiliser remains high across the globe.
Furthermore, the numbers appear to add up regarding future profitability. Sirius Minerals is forecasting operating costs which are among the lowest in the industry when production kicks off in 2021. It anticipates cash margins of between 70% and 85%, which should lead to a rapid pay-down of debt levels. This could leave the company with a rapidly-rising cash balance in future years that may end up with investors in the stock receiving high dividends for many years to come.
Clearly, the company offers high potential rewards. However, its risks are also high. As discussed, its share price has been highly volatile this year, and this is likely to continue as the date of first production comes closer. As a company which lacks diversification within its asset base, there is also increased risk of project delays and they could impact negatively on its performance.
However, with a net present value (NPV) of between $15bn and $28bn each end of construction, versus a market capitalisation of around $1.5bn, it appears to be extremely cheap at the present time. Therefore, with a wide margin of safety and clear growth potential, it could be a profitable, albeit volatile, performer.
Also experiencing high volatility during the course of the last year has been online gaming company Stride Gaming(LSE: STR). It released a positive trading update on Monday which showed it has experienced strong trading in the second half of the year after an upbeat first part of the year. As a result, it is now confident of meeting the upper end of market expectations for the financial year which has just ended.
The announcement helped to push the company's share price up by nearly 4%. However, after a turbulent year it is still down 5% during the last 12 months. Looking ahead, the company has growth potential as the online gaming industry continues to experience high growth. It trades on a price-to-earnings (P/E) ratio of just 10.2, which suggests there could be further upside potential on offer over the medium term.
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Peter Stephens owns shares in Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.