Investors Take Shine to Silver, Gold Wholesaler

0

Shares of A-Mark Precious Metals Inc. are looking golden.

As concerns about sinking oil prices and China’s economic growth have sunk the markets, the Santa Monica wholesaler has seen its stock price soar. A-Mark shares jumped 12 percent to close at $18.30 the week ended Jan. 20, making it the biggest winner on the LABJ Stock Index. (See page 50.) And it’s worth noting that the company’s shares are up 87 percent over the trailing 52 weeks, having climbed sharply since September.

A-Mark buys gold and silver from global mints and then sells coins, bars and other products to retailers who in turn sell to the public.

In July, the firm started seeing an uptick in volumes of precious metals being sold along with increased price volatility. That was especially true on the retail side of its business due to the third-quarter stock market correction, explained analyst Juan Molta of B. Riley & Co. in West Los Angeles.

“Psychologically, when there is a financial crisis, people like to buy physical precious metals … especially silver, which is lower priced,” Molta said.

But he noted that A-Mark’s stock price is not directly correlated to the price of gold itself, which for example, fell in November as the company’s shares climbed. Molta said that was because the company is a market maker – buying from mints and mines and selling to retailers – A-Mark profits not only from demand for precious metals, but also from a wider spread between what buyers are willing to pay and sellers are willing to take.

It’s also made strides by diversifying its business, adding services such as logistics, storage and customer financing, Molta said. Additionally, the company has been trying to ramp up custom products such as silver salvaged from shipwrecks, which carries a higher value than regular silver and greater profit margin.

All these dynamics led to strong results for A-Mark’s fiscal first quarter of this year, which ended Sept. 30. The company saw about $2 billion in revenue, an increase of 38 percent from the same period a year ago, and earnings of 76 cents a share, a jump of 375 percent year to year.

“The first quarter was exceptionally strong across the board, underscoring the earnings power of our unique business model,” said A-Mark Chief Executive Gregory Roberts in a November conference call.

Molta added that A-Mark, which has been in business for five decades, enjoys longstanding relationships with its sovereign mint suppliers and has only a handful of competitors.

Granted, the company only went public a couple of years ago, is thinly traded and isn’t impervious to market whims. A-Mark shares shed 17 percent the week ended Jan. 13 while markets were getting pummeled.

“I think you had a little bit of profit-taking,” Molta said. “People are still new to their story.”

No posts to display