Up 32% in a month! Is this the best FTSE 250 stock on the LSE right now?

Hochschild Mining (LSE:HOC) is a FTSE 250 constituent with a share price that’s gained 32% in the past month. That’s the highest gain of any share on the index over the past 30 days.

So what is this lesser-known UK-listed company and what does it do?

Hochschild Mining has offices in London but is headquartered in Lima, Peru. It’s mainly focused on mining silver in that country but has other gold and copper operations across North, Central and South America. These are run via its many subsidiaries, including Minera Santa Cruz, Andina Minerals Chile, and Amarillo Gold, to name just a few. Besides its three operational mines, it has two more in development — one of which is at an advanced stage.

While recent gains are impressive, the share price is down 25% over the past five years. After hitting a price peak of £3 in August 2022, it began a steady decline to 54p in late 2022. But it has since recovered to £1.45, with most of those gains made this year.

What prompted this recovery?

Gold and silver prices have been rising lately, fuelled by industrial demand and the minerals’ role as safe-haven assets. This equates to potentially significant revenue growth for Hochschild. With investors anticipating continued demand for silver, the share price is increasing.

The company aims to meet this demand with plans for new mines in Brazil and Chile. Preliminary assessments on its Volcan gold mine in Chile estimate production at 22m tonnes per year over a 14-year lifespan. The more recent foray into Brazil gives it the option to purchase the Monte Do Carmo mine, offering a potential 95,000 gold ounces annually over a nine-year lifespan. 

But like many foreign mining companies, it’s at risk from geopolitical and environmental concerns. Several regions in South America have historically experienced political unrest that often disrupts local supply chains. While Hochschild has outlined an admirable sustainability strategy, the cost of meeting societal and environmental targets can threaten profits.

Financial forecast

The company has been loss-making since 2022 but is expected to return to profit within the next three years. Consensus among analysts is for earnings to grow at a rate of 59% per year, with earnings per share (EPS) forecast to grow at 62.6% per year.

As the company is currently unprofitable, a price-to-sales (P/S) ratio is most appropriate to evaluate performance. At 1.4, it’s just below the industry average of 1.7, indicating acceptable performance with some growth potential. But the average 12-month price target from analysts evaluating the stock is £1.58, a mere 8.7% rise from current levels.

With $1.42bn in assets and $668m in shareholder equity, it’s more than capable of covering its $347bn of debt. However, it’s worth noting that its debt-to-equity (D/E) ratio has doubled in the past four years, from 25% to 51%. If this trend continues, its debt position could become a concern.

Overall, while Hochschild has had a good month, I wouldn’t say it’s the best FTSE 250 stock right now. Investors may net some short-term returns while gold and silver climb but I don’t see enough evidence to back a long-term investment thesis.

This post was originally published on Motley Fool