Should Investors Buy Alio Gold Hoping for a Turnaround?

Shares of Alio Gold [stock_market_widget type="inline" template="generic" color="default" assets="ALO.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] have been decimated on the stock market over the past year, losing over 60% of their value thanks to operational issues that have squeezed its financial performance. Higher costs, weak gold pricing, and low volumes of gold placed on the market for sale have been Alio’s Achilles Heel.

But, can investors expect a turnaround at Alio in 2019? Let’s find out.

What Ails Alio?

Alio’s rising costs and stagnant sales have weighed on the company’s financials and its stock price big time in the past year.

Alio sold 82,598 ounces of gold in 2018, which was a slight drop as compared to the preceding year’s gold sales of 83,211 ounces. Also, the company clocked stronger average realized price of $1,280 per ounce of gold during the year as compared to the preceding year’s average realized price of $1,256 an ounce.

But the lower ounces of gold sold meant that Alio’s revenue dropped slightly year over year to $104.5 million in 2018. However, the bigger problem was the company’s cost profile. Alio’s all-in sustaining costs per ounce of gold for the year came in at $1,338, a massive increase of more than 29% as compared to the prior-year period.

The higher costs led to a net loss of $29 million for the year as compared to a net income of $22 million in 2017. Investors clearly didn’t like Alio’s rising cost profile, which is why the stock has been punished big time over the past year. That’s not surprising as Alio’s operating cash flow for the year came in at a negative $18.4 million as compared to a positive operating cash flow of $13 million in 2017.

So, Alio’s rising costs and stagnant sales have weighed on the company’s financials and its stock price big time in the past year.

What Next?

We saw that Alio placed close to 83,000 ounces of gold for sale on the market. However, the company’s annual production stood at 101,343 ounces for full-year 2018 from its two mines – Florida Canyon in Nevada and San Francisco in Mexico.

The company hasn’t provided a concrete outlook for 2019, but it did state that it expects to produce 60,000 ounces of gold at Florida Canyon for the year. This compares favourably to last year’s output of 47,353 ounces.

Meanwhile, production at the San Francisco mine is expected to remain consistent for the first half of 2019, though Alio has clarified that the mine is capable of operating at full capacity for the entire year. So, it won’t be surprising to see Alio deliver higher production in 2019, but it remains to be seen if that translates into higher sales.

The good news is that analysts expect Alio to deliver higher sales of gold ounces this year. Its revenue is expected to jump nearly a third to $139 million in 2019, while the company is expected to deliver earnings of $0.09 per share as compared to last year’s loss.

If Alio can deliver that level of growth, investors can expect a jump in the stock price as the year progresses. But before taking a call, it would be wise to check Alio’s quarterly reports to see if it is actually making progress.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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