Forge shares soar 456% – should you be buying?

Shares gained 65% last week alone!

Ryan Newman (TMFNewmy)

Ryan Newman (CFA) is the Director of Research of The Motley Fool Australia, and Portfolio Manager for the Pro and North Star services. Ryan’s interest in investing and stocks began at a young. His journey with The Motley Fool started first as a member but when the company first came to Australia he joined the team as one of our writers. Recognising his investing talent and passion, it wasn’t long before he was approached to join the investing team as a research analyst on Pro. Ryan is passionate about learning and continual development. He earned his Chartered Financial Analyst (CFA) designation in 2022, and has completed his Bachelor of Accounting and his Graduate Certificate of Corporate Finance. Ryan loves spending time with his young family as well as non-fiction reading, catching the latest movies and following his sports team, the St Kilda Saints (AFL).

Published December 31, 2013 6:17 am AEDT

Shareholders of engineering and construction company Forge Group (ASX: FGE) embraced the news that the company got the go ahead for more work at Gina Rinehart's Roy Hill iron ore mine, located in Western Australia.

After opening at $1.10, the company's shares soared as high as $1.96, before closing at $1.585 on Monday – a 54.6% increase for the day. Shares have now regained 456% since hitting a low of 28.5c late in November when the company ended its trading halt to reveal the total extent of losses on two of its power station projects. In total, the shares saw a 65% rise in value last week.

The company said that it had received formal notification to proceed with phase three of construction of Roy Hill's $1.47 billion processing facility. The contract is Forge's largest ever and is worth $830 million. Chief Executive David Simpson said that it underpins the company's order book through to 2015.

Foolish takeaway

Forge shares might well be on the rise again but investors should remind themselves of the volatility and risks facing the sector. Others in the sector, including Ausdrill (ASX: ASL) and Boart Longyear (ASX: BLY) are also down significantly for the year, and conditions don't seem to be getting any better as investment in the mining sector continues to decline.

Get the full report on our top dividend stock for 2014 — FREE!

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.