Standing out among the Street's worst performers today is Newmont, a precious metals company whose shares slumped -3.9% to a price of $32.13, 52.79% below its average analyst target price of $68.07.
The average analyst rating for the stock is buy. NEM lagged the S&P 500 index by -6.0% so far today and by -48.6% over the last year, returning -24.5%.
Newmont Corporation engages in the production and exploration of gold. 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.
Newmont does not release its trailing 12 month P/E ratio since its earnings per share of $-1.06 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for NEM of -30.3. Based on the company's positive earnings guidance of $2.93, the stock has a forward P/E ratio of 11.0. 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. Newmont's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.34, but is still below the average P/B ratio of the Basic Materials sector, which stood at 2.07 as of the first quarter of 2023.
Newmont is likely overvalued at today's prices because it has a negative P/E ratio., a lower P/B ratio than its sector average, and No published cashflows with an unknown trend. The stock has poor growth indicators because of its with a negative growth trend, and no PEG ratio. We hope this preliminary analysis will encourage you to do your own research into NEM's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
