Why You Should Not Worry After 25% Drop In Wheaton Precious Metals Stock

by Trefis Team
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Wheaton Precious Metals
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Wheaton Precious Metals stock (NYSE: WPM) dropped 25% in the last 6 months and currently trades at $40. The decline in stock price was mainly driven by weakness in gold prices. After registering an impressive rise from $1,500/ounce in January 2020 to over $2,000/ounce in September 2020, gold prices have since then remained volatile and have, in fact, largely declined. The price currently stands at less than $1,820/ounce. Weakness in gold price was driven by gradual lifting of lockdowns, which led to expectations of faster economic recovery. Additionally, silver prices have also seen significant volatility over recent months. The recent drop in gold and silver prices took a toll on WPM’s stock, as the company gets more than 95% of its revenue from gold and silver. But will WPM’s stock continue its downward trajectory over the coming weeks and months, or is a bounce in the stock more likely?

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last 20 years, returns for WPM stock average close to 17% in the next six-month (126 trading days) period after experiencing a 25% drop over the previous six-month (126 trading days) period. Notably, though, the stock is likely to outperform the S&P500 over the next three months, with an expected return which would be 12% higher compared to the S&P500.

But how would these numbers change if you are interested in holding WPM stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test WPM stock chances of a rise after a fall and vice-versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!

MACHINE LEARNING ENGINE – try it yourself:

IF WPM stock moved by -5% over 5 trading days, THEN over the next 21 trading days, WPM stock moves an average of 2.6 percent, which implies a return which is slightly higher, i.e. 1.4% higher, than that of the S&P500.

More importantly, there is 55% probability of a positive return over the next 21 trading days and 50% probability of a positive excess return after a -5% change over 5 trading days.

Some Fun Scenarios, FAQs & Making Sense of WPM Stock Movements:

Question 1: Is the average return for Wheaton Precious Metals Corp stock higher after a drop?

Answer:

Consider two situations,

Case 1: Wheaton Precious Metals Corp stock drops by -5% or more in a week

Case 2: Wheaton Precious Metals Corp stock rises by 5% or more in a week

Is the average return for Wheaton Precious Metals Corp stock higher over the subsequent month after Case 1 or Case 2?

WPM stock fares better after Case 2, with an average return of 7.1% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 9.8% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Wheaton Precious Metals Corp stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Wheaton Precious Metals Corp stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For WPM stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is generally lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.

WPM’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Wheaton Precious Metals Corp stock by changing the inputs in the charts above.

At the current price, investors have an opportunity to see a potential upside of more than 35% in WPM’s stock, which as per Trefis, has a fair value of $55 per share.

While Wheaton Precious Metals stock may have moved, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how how the stock valuation for Compass Minerals vs Southwest Gas shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

 

See all Trefis Price Estimates and Download Trefis Data here

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