Shares in North American Palladium (PAL) declined sharply on Thursday, losing 8.96 percent to close the day’s trading at just $0.314 a share. The decline comes amidst a long slump that dates back to a March 24 when the stock experienced a mini-peak based on sunnier projections for a Northern Ontario mine the company owns.
Today’s losses appear to be a part of a broader sell-off across the markets, with the major indices getting hammered as investors flee from growth stocks. Palladium mining has been a relatively popular growth play, tending to fly under the radar among mining stocks.
Additionally, the company also announced amendments to the second tranche of its public offering and Q1 production results. The amended public offering will decrease the size of the offer, the price per share, and the number of series 2 warrants. The Q1 production results showed underground production through the end of March averaging 3,065 tons a day, exceeding previously provided guidance.
It’s possible that either or both of these news items is driving some of the day’s decline in addition to the broader market trend.
The small-cap palladium miner has been on a steady decline, losing almost 80 percent of its market cap over the last year despite massive gains for stocks as a whole. The company appeared to have a brief respite in March after updated reserve estimates appeared to dramatically increase the value of their mining holdings. However, since peaking on March 24, the stock is down again, losing over 45 percent since that point.
This most-recent decline may have certain technical factors driving it. Most notably, on Friday of last week, the signal line for the stock crossed PAL’s MACD line from above, traditionally a sell sign for traders. Prior to that moment, the pull-back from the March 24 high had leveled off.
This is notable because it appears to coincide with the beginning of a heavy pull-back from growth stocks across the stock markets. Friday’s heavy losses on the Nasdaq could easily have combined with this technical factor to drive North American Palladium even lower.
However, a look at the company using the DuPont System for analysis may add some complexity to this flagging security. While North American Palladium’s revenues have been declining and the company continues to lose money, its net margins as compared to the industry average remain strong. What’s more, they improved year-over-year from 2012 to 2013. While the company’s return on equity (ROE) is well below industry average, this is largely driven by its very low rate of asset turnover rather than its margins.
Certainly, the fact that asset turnover decreased last year is a concern, but improving margins is a trend that, if sustained, could mean a much brighter future for PAL. This recent spate of losses has pushed the 14-day stochastic RSI down to a level of 0.00 for most of the week and the 14-day RSI is nearing a key level of 30. Should the markets bounce back, North American Palladium certainly appears oversold from a technical perspective at this point and might be able to rebound as a result.
