Options Corner: Why Royal Gold Presents A Compelling Reversal Narrative For High-Risk Gamblers
With earnings season in full bloom, one company that doesn't look particularly enticing on surface level is Royal Gold Inc. (NASDAQ:RGLD). While RGLD stock is easily beating the benchmark Nasdaq Composite index this year, it has floundered since early July. Ahead of its second-quarter disclosure scheduled for release this Wednesday after the market close, the timing lacks favorability. Nevertheless, RGLD is flashing a convincing quantitative signal that could potentially point to a reversal.
First, investors should appreciate the fundamental strengths of the business. As a royalty and streaming specialist, Royal Gold doesn't primarily involve itself in precious metal extraction. Instead, it offers cash upfront to producers. In exchange, Royal Gold either receives a fixed percentage of the revenue from a mine's production (royalty) or it exercises the right to buy the metal at a fixed, discounted price (streaming).
To be fair, one of the bearish arguments is that Royal Gold has a reliance on royalties and streams, which carries certain risks. However, I see this as an argument for RGLD stock, especially in a choppy environment. In the company's June 2025 investor presentation, it notes on slide 16 that, unlike metal producers, Royal Gold features a relatively fixed cost base. Therefore, even as margins expand due to rising gold prices, the cost doesn't materially rise.
In contrast, producers see relatively static margins with costs rising when the gold price swings northward. That's because miners must deal with myriad issues, such as inflation, labor, energy and material costs. Again, with Royal Gold, the cost is generally fixed, facilitating business predictability.
Also, it's worth pointing out that the royalty and streaming specialist inked two big acquisitions last month, one of which gives Royal Gold exposure to the copper market. Now, copper isn't predicted to feature as the be-all, end-all undergirding RGLD stock. Still, with demand soaring for the industrial metal due to its importance in multiple critical sectors, the company appears well-positioned for the future.
Striking Quantitative Gold with RGLD Stock
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