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It has been an excellent year for shareholders of FTSE 250 firm Hochschild Mining (LSE: HOC). Hochschild Mining share price has soared 106% so far this year.
In five years, the gain has been a modest 39%. Still, I consider it a solid performance. The FTSE 250 is actually down 4% over that period, so Hochschild is well ahead of its peers.
After such a strong performance in 2024, is Hochschild a stock I think investors should consider as we approach the end of one year and the beginning of another?
Favorable conditions have helped lift the share price.
The company has been helped this year by the great success of the gold price.
That helps explain why in the first half, attributable production volumes grew 11% year-on-year, but revenue increased 25% and the company posted an exceptional pre-tax profit of $69 million, while in the year after that figure it had been 66 dollars. m loss.
So far, so good.
If gold prices remain high – and the current level of global geopolitical risk is one reason to expect this – then I think Hochschild could continue to reap benefits in terms of profitability and also demand.
I like the fact that the company is well established, has some diversification into different mines (although focused on the gold and silver space), and is already a proven volume producer rather than simply being in the exploration phase.
Weighing some risks
But there are a couple of things that worry me about the FTSE 250 shares.
One is your assessment. That the share price has more than doubled so far in 2024 is clearly good news for existing shareholders. But that means the company is now trading at a price-to-earnings ratio of 45. That seems high to me. As evidenced by the jump from last year's loss to this year's profit in the interim, Hochschild's earnings outlook can be volatile.
So if gold prices continue to rise, profits could rise even further. But since gold prices have already recently reached a historically high level, my fear is that at some point the value of the yellow metal will drop and with it the price of Hochschild shares. The company's heavy exposure to gold is a double-edged sword.
The risk-reward ratio does not appeal to me
So while I like a number of things about Hochschild Mining's business and its commercial prospects, I don't own the FTSE 250 share. I also have no plans to add it to my portfolio.
As for whether investors should consider the stock, I think there could be more attractive stocks elsewhere when it comes to risk-reward.
A soaring gold price has been bright for Hochschild's performance so far in 2024, but the opposite could also prove true when the tide turns on the gold price.
