When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as Kirkland Lake Gold Ltd. has fared well over time in a fickle stock market, which is why I want to bring it into light amongst all the chaos. Below I take a look at three key features of what makes a robust defensive stock investment: its size, financial health and track record.
Kirkland Lake Gold Ltd. engages in the exploration and development of gold properties. Established in 1983, and headed by CEO Anthony Makuch, the company size now stands at 1.69k people and with the company’s market cap sitting at CA$7.4b, it falls under the mid-cap category. Volatility in the market is hardly detrimental to the financial health and business operations of a large, well-established company. Although some monetary and fiscal policy changes may impact some corporate financing decisions and strategy, what we’ve learnt over time is that these companies tend to adapt. And having a strong balance sheet and a history of proven success aids in this adaptability.
Kirkland Lake Gold currently has US$27m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Kirkland Lake Gold generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 7827x, which is well-above the minimum requirement of 3x. Moreover, its cash flows from operations copiously covers it debt by more than 2x, which is higher than the bare minimum requirement of 0.2x. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.
KL’s profit growth over the previous five years has been positive, with an average annual rate of 70%, outperfoming the industry growth rate of 34%. It has also returned an ROE of 19% recently, above the industry return of 10%. Characteristics I value in a long term investment are proven in Kirkland Lake Gold, and I can continue to sleep easy at night with the stock as part of my portfolio.
Next Steps:Whether you’re convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. Kirkland Lake Gold tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I’ve compiled a list of factors for you to continue your reading before you buy:
- Future Outlook: What are well-informed industry analysts predicting for KL’s future growth? Take a look at our free research report of analyst consensus for KL’s outlook.
- Valuation: What is KL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether KL is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.