If actions truly speak louder than words, investors may want to rethink the precious metals complex, especially in light of the dramatic rise in interest toward Equinox Gold (EQX). True, names like EQX stock don’t often generate holistic excitement. First, the underlying gold asset is merely a commodity. Second, mining the asset can be a volatile endeavor. Nevertheless, options traders seem enthused about Equinox’s prospects.
In the past five sessions, EQX stock gained nearly 7% of equity value. In the trailing month, it returned stakeholders just under 36%. And since the beginning of the year, shares shot up over 53%. Despite the robust momentum, it’s relatively undervalued. In the trailing year, EQX actually slipped almost 36%. Amid concerns about the direction of monetary policy, it wouldn’t be out of the question for the gold producer to keep running higher.
Overall, several precious metals-related companies have bounced higher based on the fear trade. Recently, JPMorgan Chase (JPM) CEO Jamie Dimon declared that the U.S. banking crisis has yet to reach a conclusion and that the consequences may be felt for years. Additionally, the latest read on labor market opportunities suggested that economic growth may be slightly decelerating.
If the Federal Reserve manages to guide the economy to a soft landing, risk-on securities may be the place for the best possible returns. However, a rough landing may spark a flight to safety. Therefore, the sustained interest in the precious metals appears noteworthy.
To be sure, derivatives traders don’t seem to be wasting any time. Following the close of the April 10 session, EQX stock represented a highlight for unusual stock options volume. Specifically, total volume reached 98,027 contracts against an open interest reading of 96,305. The delta between the Monday session volume and the average one-month trading volume is 1,945.21%.
Moreover, call volume reached 97,947 contracts versus put volume of 80. This setup yields a miniscule put/call volume ratio, which on paper dramatically favors the bulls. Even better, there could be more upside on the horizon.
EQX Stock Moves Northward on a Lack of Trust
At first glance, EQX stock seemingly offers a bullish proposition based on the possibility that the Fed may back off its hawkish monetary policy stance. Throughout last year, the central bank cited skyrocketing inflation as the motive behind its aggressive interest rate hikes. But now that the labor market appears to be cooling, policymakers may take a more accommodating approach.
Still, the surprise production cuts by the alliance between the Organization of the Petroleum Exporting Countries (OPEC) and non-member oil-producing nations – known as OPEC+ – poured cold water on this framework. In response, crude prices surged, threatening to undo a good portion of the Fed’s efforts in curbing consumer inflation.
Because Fed Chair Jerome Powell acknowledged during his policy speech last year at Jackson Hole, Wyoming that inflation needed to be addressed to avoid long-term economic damage, it’s well within reason that interest rates could swing higher this year.
And yet, investments like EQX stock continue to march to increasingly elevated ground, which may bring us to an important point: inflation might not be the biggest catalyst for gold prices. Rather, everyday investors’ lack of trust in broader economic and financial stability could be driving the enthusiasm for the yellow metal.
Strong Indicators for Equinox Gold
Aside from the fundamentals, other factors point toward optimism for EQX stock. First, the Barchart Technical Opinion rating pegs Equinox as a 100% buy, citing a strengthening short-term outlook on maintaining its current direction. Further, long-term indicators fully support a continuation of the present bullish trajectory.
Second, Equinox might be undervalued. Notably, the market prices EQX stock at a trailing book multiple of 0.71. In contrast, the sector median value stands at 1.65 times. Therefore, Equinox ranks better than 79.59% of companies listed in the metals and mining industry.
To be fair, EQX stock isn’t an easy investment to bank on. Operationally, Equinox’s three-year revenue growth rate pings at 8.7%, which is only a tad higher than the industry median of 7.45%. Also, its net margin on a trailing-year basis slipped to 10.83% below breakeven. Finally, its Altman Z-Score slipped to 1.11, indicating a business in distress.
Still, the masses of options traders believe that EQX stock represents a better proposition than exposure to “standard” equities. Therefore, if you have some speculation funds lying around, Equinox might be worth a look.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
