Stillwater Mining Company : The downtrend should continue

07/13/2012 | 09:17am Opinion : Bearish under 7.9 USD Target price : 7.4 USD Potential: 13.25% Stop loss: 8.1 USD

NYSE Precious Metals / Minerals

Stillwater Mining Company is engaged in the development, extraction, processing, smelting, refining and marketing of palladium, platinum and associated metals from a geological formation in southern Montana known as the J-M Reef. This is the only known significant source of platinum group metals (PGMs) in the United States and one of the significant resources outside of the Russian Federation and South Africa. Platinum group metals are rare precious metals used in diverse applications for auto catalysts, fuel cells, hydrogen purification, electronics, jewelry, dentistry, medicine, coinage and other uses. The company is approaching a significant point but could go through a new downward acceleration.

The company has a high level of valuation as shown by the “enterprise value/revenue” ratio at 0.92x for the current year. Besides, according to the analysts polled by Thomson Reuters, the earnings per share have been recently downgraded.

Technically, the share is close to a major technical support at USD 7.9. The breakdown of this strategic point would generate a sell signal for the most offensive investors. Then stock prices could go toward new support areas at levels much lower. The moving averages could put pressure on prices and lead them to a sustainable downward trend.

The most active investors could initiate a short position after the breakdown of the support to take advantage of prices decline. However, if the stock goes beyond this support, we recommend to stop the trade above USD 8.

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