Newmont (NEM) stock climbed 1.2 % this afternoon. According to our metrics, the company seems overvalued at today's prices. In the below analysis, we will put Newmont's valuation in the context of its poor growth indicators and mixed 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 14,600 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 -39.9 and an expected P/E ratio of 11.3. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $-0.98 or forward earnings per share of $3.46.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Newmont's P/E ratio is higher than its sector average of 10.03, we can deduce that the market is overvaluing the company's earnings.
NEM Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Newmont, the P/B value is 1.61 while the average for the Basic Materials sector is 2.08.
NEM's Weak Cash Flow Generation Is Troubling
The table below shows that Newmont is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Newmont's case, free cash flow is growing at an average rate of 0.0% with a coefficient of variability of 9239896482.0%. We can also see that cash flows from operations are evolving at a 0.0% rate, versus 0.0%:
|Date Reported||Cash Flow from Operations ($ k)||Capital expenditures ($ k)||Free Cash Flow ($ k)||YoY Growth (%)|
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 (%)|
Newmont's Operating Margins
|Date Reported||Total Revenue ($ k)||Operating Expenses ($ k)||Operating Margins (%)||YoY Growth (%)|
Newmont's cost of revenue is growing at a rate of -0.0% in contrast to -5.8% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is -0.2 and the average operating margins growth rate is -21.6, with coefficients of variability of 11.0% and 41.8% respectively.
We See Mixed Market Signals Regarding NEM
Newmont has an average rating of hold and target prices ranging from $94.06 to $53.24. At its current price of $39.07, the company is trading -48.97% away from its target price of $76.57. 3.8% of the company's shares are linked to short positions, and 82.1% of the shares are owned by institutional investors.
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