I have been thinking how inefficient the market is sometimes, In my many years of investing, i have been amazed how high probability outcomes are not priced into a stock until they are announced. It happens mostly in resource stocks where for example one can track a commodity price over a quarter and has a good indication of production profile and can easily extrapolate revenue and cash flow. , However was often occurs is many investors wait for a company to announce a great quarterly result and buy on the news at prices 5-15% higher than what was available even though the result was a very high probability,
Similarly in WGOs case, the WE3 results confirm the volumetrics of the structure grows moving north resulting in a very high chance of a substantial reserve and resource increase within a few weeks . Both WGO and STX management are aligned on the reserve upside and the chances of this occurring i would put in the high 90% range. ( spoke to DD this week and he is confident of positive reserve outcome )
Yet despite this, the market does not rationally add a risked value to this outcome, even a heavily risked value. The coming upgrade is likely to confirm by my calculations anywhere between 50-100m additional reserve value and arguably another 50m in resource value. Very significant considering current EV
Yet, the market and many investors will be buying this at 15-17c in a few weeks time. This results in significantly less total return when buying news flow. A purchase at 13c results in a 54% increase if SP goes to 20c but only a 17% increase if one bought at 17c at 25c its a 92% return for the 13 buyer and 47% increase for the 17c buyer.
A rational market would place a risked /probabilistic value on the reserve outcome, even if it was discounted by 50% the stock should have moved to 15c--16c posts WE3 results, however its clear the market is neither rational nor efficient
WGO Price at posting:
13.0¢ Sentiment: Buy Disclosure: Held
