Shares of Barrick Gold Fall -6.8%. Here's What You Need to Know.

Standing out among the Street's worst performers today is Barrick Gold, a silver company whose shares slumped -6.8% to a price of $16.14, 27.31% below its average analyst target price of $22.21.

The average analyst rating for the stock is buy. GOLD lagged the S&P 500 index by -7.0% so far today and by -22.6% over the last year, returning 1.9%.

Barrick Gold Corporation engages in the exploration, mine development, production, and sale of gold and copper properties in Canada and internationally. 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.

Barrick Gold's trailing 12 month P/E ratio is 19.7, based on its trailing EPS of $0.82. The company has a forward P/E ratio of 11.4 according to its forward EPS of $1.42 -- 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 second quarter of 2024, the basic materials sector has an average P/E ratio of 22.71, and the average for the S&P 500 is 27.65.

To better understand GOLD’s valuation, we can divide its price to earnings ratio by its projected five-year growth rate, which gives us its price to earnings, or PEG ratio. Considering the P/E ratio in the context of growth is important, because many companies that are undervalued in terms of earnings are actually overvalued in terms of growth.

Barrick Gold’s PEG is 2.35, which indicates that the company is overvalued compared to its growth prospects. Bear in mind that PEG ratios have limits to their relevance, since they are based on future growth estimates that may not turn out as expected.

To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Barrick Gold's free cash flow, which was $3.73 Billion as of its most recent annual report. Over the last 4 years, the company's average free cash flow has been $3.6 Billion and they've been growing at an average rate of 10.2%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in GOLD have received an annualized dividend yield of 2.3% on their capital.

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. Barrick gold's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.21, but is still below the average P/B ratio of the Basic Materials sector, which stood at 3.12 as of the second quarter of 2024.

Since it has a Very low P/E ratio, a lower P/B ratio than its sector average, and generally positive cash flows with an upwards trend, Barrick Gold is likely undervalued at today's prices. The company has poor growth indicators because of an inflated PEG ratio and weak operating margins with a unknown rate of growth. We hope you enjoyed this overview of GOLD's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

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.