Independence Group NL (ASX: IGO) is a diversified mineral exploration company focusing on nickel, copper and zinc mining in Western Australia.
Its share price is down 9% over the last year which is quite poor considering the ASX 200 is up 8% over the same period. There are current indications that this decline might not be over and with that in mind, shareholders might want to consider their options. Here are three reasons why I'd sell my shares in Independence Group:
- Poor fundamentals: Independence Group is currently trading at a price to earnings ratio of 25 which is higher than the market PE ratio of 16. Whilst that in itself is ordinarily not a problem (the market is usually willing to pay more for a company with high growth potential), it becomes really concerning when it is accompanied by Independence Group's current return on equity ratio of 1% and dividend yield of 0.53%.
- Market consensus: The market appears to have a consensus view that it's time to get out of Independence Group. Top brokers Morningstar and Goldman Sachs have slapped a sell rating on its shares and according to the latest short sale reports, 19% of its issued shares have generated short interest making it one of the most shorted shares on the ASX. Whilst it's possible that the market could be wrong, it's difficult to form a contrarian view given Independence Group's current fundamentals.
- Uncertain industry: Mining is a cyclical and capital intensive industry and whilst there has been a recent boom in commodity prices fueled by demand from China, this is something that the company has no control over and cannot be guaranteed in the future. With an uncertain industry, you need a prudent management team with good capital allocation. Independence Group does not seem to have that with the scrip based acquisitions of Jabiru and Sirius Resources proving to be dilutive.
Foolish takeaway
Overall I would stay away and take advantage of better opportunities out there such as the wonder share below that shows no sign of stopping.
