Value hunters like to talk about whether a stock is cheap or pricey on the basis of its earnings and cash flow. But sometimes you have to go well beyond the financial statements to assess an investment.
A case in point is Lucara Diamond Corp. It seems to be a value hunter’s dream – a high-performing company with a spotless balance sheet selling for a below-market multiple. But is the Vancouver-based miner really as cheap as it appears to be on paper?
Let’s start with the positives. Lucara operates a diamond mine in Botswana and has a history of unearthing massive gems, including the largest gem-quality diamond discovered in more than a century. It has been consistently profitable since 2013, pays a 4.4-per-cent dividend and doesn’t have a penny of debt. Better yet, it changes hands for a mere 11 times earnings.
In a stock market where most companies fetch much higher valuations, and many are levered to the moon, those numbers would seem to qualify the company as a rare bargain.
But here’s where things get interesting. Earlier this week, the company’s long-time chief executive, William Lamb, suddenly decided to “retire” from the top job, according to a company news release. It was an unexpected move for an executive that Bloomberg lists as being all of 46 years old. Even more mystifying is that Mr. Lamb will continue to serve as a technical adviser to the company in his, um, retirement.