Value Analysis of Newmont Every Investor Should Read

Newmont (NEM) stock climbed 0.1 % this afternoon. According to our metrics, the company seems fairly valued at today's prices. In the below analysis, we will put Newmont's valuation in the context of its mixed growth indicators and positive market sentiment, which are also strong drivers for share price.

Newmont Corporation engages in the production and exploration of gold. The large-cap Basic Materials company is based in Denver, United States and has 14,400 full time employees.

NEM Has a Higher P/E Ratio Than the Sector Average

Compared to the Basic Materials sector's average of 8.57, Newmont has a trailing twelve month price to earnings (P/E) ratio of 39.9 and an expected P/E ratio of 17.8. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $1.22 or forward earnings per share of $2.73.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Newmont's P/E ratio is higher than its sector average of 8.57, we can deduce that the market is overvaluing the company's earnings.

NEM Has an Average P/B Ratio

Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.

Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Newmont, the P/B value is 1.8 while the average for the Basic Materials sector is 1.86.

NEM Is Generating Cash

Newmont has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 38.3%, compared to 19.2% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 68.3% and a coefficient of variability of 59.3%:

Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2021-12-31 4,279,000,000.0 -1,653,000,000.0 2,626,000,000.0 -26.65
2020-12-31 4,882,000,000.0 -1,302,000,000.0 3,580,000,000.0 155.17
2019-12-31 2,866,000,000.0 -1,463,000,000.0 1,403,000,000.0 76.48
2018-12-31 1,827,000,000.0 -1,032,000,000.0 795,000,000.0 n/a

Newmont's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Newmont's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

Newmont's Gross Margins

Date Reported Revenue ($) Cost of Revenue ($) Gross Margins (%) YoY Growth (%)
2021-12-31 12,222,000,000.0 7,236,000,000.0 40.8 -23.84
2020-12-31 11,497,000,000.0 5,338,000,000.0 53.57 19.2
2019-12-31 9,740,000,000.0 5,363,000,000.0 44.94 -0.51
2018-12-31 7,253,000,000.0 3,977,000,000.0 45.17 n/a

Newmont's Operating Margins

Date Reported Total Revenue ($) Operating Expenses ($) Operating Margins (%) YoY Growth (%)
2021-12-31 12,222,000,000.0 10,159,000,000.0 16.88 -42.76
2020-12-31 11,497,000,000.0 8,106,000,000.0 29.49 65.67
2019-12-31 9,740,000,000.0 8,006,000,000.0 17.8 7.16
2018-12-31 7,253,000,000.0 6,048,000,000.0 16.61 n/a

Newmont's cost of revenue is growing at a rate of 34.9% in contrast to 19.6% for operating expenses. Sales revenues, on the other hand, have experienced a 19.5% growth rate. As a result, the average gross margins growth is -1.7 and the average operating margins growth rate is 10.0, with coefficients of variability of 11.6% and 30.8% respectively.

Newmont Benefits From Positive Market Signals

The market sentiment regarding Newmont is overwhelmingly positive. The stock has an average rating of hold and target prices ranging from $76.78 to $52.54. NEM is trading -24.8% away from its target price of $64.67. 2.1% of the company's shares are tied to short positions, and 82.1% of the shares are held by institutional investors.

Holder Shares Date Reported Percentage Value
Blackrock Inc. 91,118,622 2022-09-29 11.48% $4,431,554,028.00
Vanguard Group, Inc. (The) 68,435,452 2022-09-29 8.62% $3,328,358,093.00
State Street Corporation 40,572,548 2022-09-29 5.11% $1,973,245,803.00
Van Eck Associates Corporation 33,136,774 2022-09-29 4.17% $1,611,606,947.00
First Eagle Investment Management, LLC 17,855,485 2022-09-29 2.25% $868,401,483.00
Deutsche Bank Aktiengesellschaft 16,497,282 2022-09-29 2.08% $802,345,282.00
Charles Schwab Investment Management, Inc. 14,876,066 2022-09-29 1.87% $723,497,444.00
Flossbach von Storch AG 14,539,437 2022-09-29 1.83% $707,125,494.00
Geode Capital Management, LLC 14,521,994 2022-09-29 1.83% $706,277,153.00
Amundi 13,157,914 2022-09-29 1.66% $639,935,125.00
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.