The week has not started at all well for Eurasia Mining (LSE: EUA). The share price is down 44% in early trading, as I write on Monday morning.
What is going on – and could this sudden price collapse offer a buying opportunity for my portfolio?
Ongoing focus on exiting Russia
The company issued an announcement today (10 June) regarding a recent leap in the Eurasia Mining share price. Indeed, even after the fall today, the shares are well above where they stood at the end of May (and almost quadruple where they were five years ago!)
The statement said the company notes the recent sharp share price increase, along with online speculation regarding a key feasibility study for its Monchetundra project in Russia. But, as Eurasia points out, that study was completed last summer. Since then, the site has been maintained but there have been no “material developments” concerning the study.
The statement concludes: “The primary focus of the Company remains the possible sale of its Russian assets although, as ever, there can be no guarantee that Eurasia will enter into binding agreements regarding the sale”.
Unusual price action a potential sign of frothiness
The sort of apparently unfounded surge followed by sudden crash we have seen in the Eurasia Mining share price over the past 10 days is a red flag to me as an investor.
At some point, many share prices become somewhat decoupled from their business fundamentals. But when a price swings by this much, essentially due to rumour, it can be a sign that speculators not investors have charged in – sometimes only to then charge out pretty fast.
That risk is usually elevated in smaller companies with fewer available shares available in the market. Eurasia Mining is a penny share and its current market capitalisation is just a little over £50m.
Focus on the business prospects
On its own though, that does not necessarily bother me. As a long-term investor, I focus on the investment case for a given business. Sudden swings like that seen in the Eurasia Mining share price could even give me a buying opportunity for a share I like.
In the case oF Eurasia though, I had no plans to buy in May or during the price surge earlier this month – and I have not changed my view.
The consistently lossmaking company has seen its formerly modest revenue tumble, to just £0.1m last year. Against those financials, the market capitalisation looks high to me.
As with many small mining companies, the valuation reflects how investors perceive the business’s potential, not its current performance.
Its Russian assets could yet turn out to generate a lot of cash when sold. But, for now, when it comes to western companies offloading assets, Russia looks like a buyer’s not a seller’s market. As the company reiterated today, there is no guarantee a deal will be struck to sell its assets there.
The post As the Eurasia Mining share price crashes, is it now a bargain? appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
More reading
As National Grid shares dip, is this a chance for investors to consider buying?
If I’d invested £5,000 in AstraZeneca shares 5 years ago, here’s what I’d have now
BP’s share price is down 18% since October, so is it time for me to buy the dip?
How I’d try to turn a £50k lump sum into £606 of passive income every month
This passive income stock is up 8% this month alone and still looks undervalued
C Ruane has no position in any of the shares mentioned. 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.
