What Is Going on With NEM Shares?

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 (%)
2023-02-23 3,220,000 -2,131,000 5,351,000 -9.79
2022-02-24 4,279,000 -1,653,000 5,932,000 -4.08
2021-02-18 4,882,000 -1,302,000 6,184,000

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 (%)
2023-02-23 11,915,000 -6,468,000 46 -17.86
2022-02-24 12,222,000 -5,435,000 56 0.0
2021-02-18 11,497,000 -5,014,000 56

Newmont's Operating Margins

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2023-02-23 11,915,000 -3,842,000 13 -18.75
2022-02-24 12,222,000 -4,791,000 16 -42.86
2021-02-18 11,497,000 -3,244,000 28

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.

Date Reported Holder Percentage Shares Value
2023-06-30 Blackrock Inc. 13% 99,433,731 $3,884,875,839
2023-06-30 Vanguard Group Inc 9% 70,218,153 $2,743,423,216
2023-06-30 State Street Corporation 5% 40,353,343 $1,576,605,098
2023-06-30 Van Eck Associates Corporation 4% 33,368,384 $1,303,702,752
2023-06-30 Deutsche Bank Aktiengesellschaft 2% 18,903,184 $738,547,393
2023-06-30 First Eagle Investment Management, LLC 2% 18,452,280 $720,930,573
2023-06-30 Charles Schwab Investment Management, Inc. 2% 16,520,075 $645,439,325
2023-06-30 Geode Capital Management, LLC 2% 14,610,735 $570,841,411
2023-06-30 Flossbach von Storch AG 2% 14,296,942 $558,581,519
2023-06-30 Morgan Stanley 2% 12,718,062 $496,894,678
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.