Shares of Newmont (NEM) jumped 0.3 % during today's morning session, bringing their 52 week performance to -11.0%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's mixed growth prospects and mixed market sentiment.
Newmont Corporation engages in the production and exploration of gold. The large-cap Basic Materials company is based in Denver, United States and has 14,600 full time employees.
NEM Has a Higher P/E Ratio Than the Sector Average
Compared to the Basic Materials sector's average of 10.03, Newmont has a trailing twelve month price to earnings (P/E) ratio of -54.9 and an expected P/E ratio of 11.1. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $-0.7 or forward earnings per share of $3.45.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Newmont's P/E ratio is higher than its sector average of 10.03, we can deduce that the market is overvaluing the company's earnings.
NEM Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Newmont, the P/B value is 1.58 while the average for the Basic Materials sector is 2.08.
NEM Is Generating Cash
Newmont has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 3.0%, compared to 9.9% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of -6.1% and a coefficient of variability of 52.8%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 3,220,000 | -2,131,000 | 1,089,000 | -58.53 |
| 2021-12-31 | 4,279,000 | -1,653,000 | 2,626,000 | -26.65 |
| 2020-12-31 | 4,882,000 | -1,302,000 | 3,580,000 | 155.17 |
| 2019-12-31 | 2,866,000 | -1,463,000 | 1,403,000 | 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 ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 11,915,000 | 8,653,000 | 27.38 | -25.03 |
| 2021-12-31 | 12,222,000 | 7,758,000 | 36.52 | 0.38 |
| 2020-12-31 | 11,497,000 | 7,314,000 | 36.38 | 37.08 |
| 2019-12-31 | 9,740,000 | 7,155,000 | 26.54 | n/a |
Newmont's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 11,915,000 | 1,657,000 | 13.47 | -17.21 |
| 2021-12-31 | 12,222,000 | 2,476,000 | 16.27 | -38.88 |
| 2020-12-31 | 11,497,000 | 1,122,000 | 26.62 | 64.42 |
| 2019-12-31 | 9,740,000 | 1,008,000 | 16.19 | n/a |
Newmont's cost of revenue is growing at a rate of 4.9% in contrast to 13.2% for operating expenses. Sales revenues, on the other hand, have experienced a 5.2% growth rate. As a result, the average gross margins growth is 0.8 and the average operating margins growth rate is -4.5, with coefficients of variability of 17.3% and 32.0% respectively.
We See Mixed Market Signals Regarding NEM
Newmont has an average rating of hold and target prices ranging from $94.51 to $53.49. At its current price of $38.42, the company is trading -50.07% away from its target price of $76.95. 3.8% of the company's shares are linked to short positions, and 82.1% of the shares are owned by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-06-30 | Blackrock Inc. | 13% | 99,433,731 | $3,820,243,762 |
| 2023-06-30 | Vanguard Group Inc | 9% | 70,218,153 | $2,697,781,309 |
| 2023-06-30 | State Street Corporation | 5% | 40,353,343 | $1,550,375,364 |
| 2023-06-30 | Van Eck Associates Corporation | 4% | 33,368,384 | $1,282,013,252 |
| 2023-06-30 | Deutsche Bank Aktiengesellschaft | 2% | 18,903,184 | $726,260,294 |
| 2023-06-30 | First Eagle Investment Management, LLC | 2% | 18,452,280 | $708,936,563 |
| 2023-06-30 | Charles Schwab Investment Management, Inc. | 2% | 16,520,075 | $634,701,251 |
| 2023-06-30 | Geode Capital Management, LLC | 2% | 14,610,735 | $561,344,411 |
| 2023-06-30 | Flossbach von Storch AG | 2% | 14,296,942 | $549,288,485 |
| 2023-06-30 | Morgan Stanley | 2% | 12,718,062 | $488,627,918 |
