Silver company Gold Fields is taking Wall Street by surprise today, falling to $15.79 and marking a -3.1% change compared to the S&P 500, which moved -1.0%. GFI is 5.55% above its average analyst target price of $14.96, which implies future downside for the stock. Indeed, the average analyst rating for the stock is hold, showing a rather gloomy outlook. Over the last year, Gold Fields shares have outstripped the S&P 500 by 29.7%, with a price change of 52.7%.
Gold Fields Limited operates as a gold producer with reserves and resources in Chile, South Africa, Ghana, West Africa, Australia, and Peru. The company is included in the basic materials sector, which groups together the steel, coal, precious metals, chemical, and copper industries. From miners to producers, what these companies have in common is a strong correlation between their stock price and the strength of current economic conditions.
This is why basic materials companies are considered to be cyclical stocks. A well-timed investment at the beginning of an economic upswing can offer strong returns, but investing during a downturn may result in months or even years of mediocre performance.
Gold Fields's trailing 12 month P/E ratio is 21.6, based on its trailing EPS of $0.73. The company has a forward P/E ratio of 65.8 according to its forward EPS of $0.24 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the basic materials sector has an average P/E ratio of 16.53, and the average for the S&P 500 is 15.97.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Gold fields's P/B ratio is 3.3 -- in other words, the market value of the company exceeds its book value by a factor of more than 3, so the company's assets may be overvalued compared to the average P/B ratio of the Basic Materials sector, which stands at 2.07 as of the first quarter of 2023.
Gold Fields is likely overvalued at today's prices because it has an inflated P/E ratio, an elevated P/B ratio, and lacking information on cashflows with an unknown trend. The stock has poor growth indicators because of its no published profit margins with a unknown rate of growth, and no PEG ratio. We hope this preliminary analysis will encourage you to do your own research into GFI's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.