If you were smart enough to take a long position in EPO last Tuesday, then you might consider yourself lucky. Back then, the shares were traded at $0.345 only; on Friday, the closing price was $0.475, or 38% higher.
This means that an imaginative investor, who bought 100,000 shares on Tuesday, found himself $13 000 richer only three days later. Now, the question is how the stock will perform in the coming days. Can investors earn even larger profits, or the shares will start to fall?
It is hard to give an answer as it is not easy to foretell the future performance of EPO on the TSX Venture Exchange (CVE). We can say for certain, however, what has triggered the recent surge of the stock. Most probably, this is the announced on Friday NI 43-101 Technical Report prepared by North Rim Exploration Ltd. on the company’s Muskowekwan project situated in Saskatchewan.
The report reveals “substantial” Indicated and Inferred mineral resources for two possible scenarios – a solution and a conventional one. The news immediately pumped the shares – on the same day they flew 26.7% up on the CVE.
The rise was reinforced by the tremendous turnover of over 10.5M shares. This made EPO the second most demanded by traders stock on the CVE last Friday.
Looking at the historical performance of the shares on the Canadian Market, we could notice that EPO is prone to similar abrupt jumps in price. They are usually followed by a short period of decline before the next surge begins. If this pattern persists, then we could probably expect a drop in the share price in the future.
In addition, Encanto currently seems overvalued by investors – its market cap is $118M, and the net tangible worth of the company is about $27M. These figures suggest that the present price of Encanto is probably not supported by the fundamentals and looks a bit high.
Of course, it does not mean that EPO is doomed to go down in the coming days. As mentioned in an earlier article, the company seems financially stable with $4.3M in cash at the end of last September and a $5.5M financing completed in December.
