Standing out among the Street's worst performers today is Newmont, a silver company whose shares slumped -3.8% to a price of $57.84, 11.04% below its average analyst target price of $65.02.
The average analyst rating for the stock is buy. NEM underperformed the S&P 500 index by -4.0% during today's afternoon session, but outpaced it by 25.4% over the last year with a return of 37.1%.
Newmont Corporation engages in the production and exploration of gold properties. The company belongs to the basic materials sector, which includes the chemical, coal, mining, aluminum, and steel industries. The demand for these materials is dependent on economic cycles: when the economy is growing, companies across all sectors ramp up production, which increases demand from basic materials companies.
Conversely, when the economy slows down, demand for these materials decreases. The stock prices of this sector tend to follow the ebbs and flows of these demand cycles — but accurately predicting where we are presently in the economic cycle is a matter of intense debate.
Newmont's trailing 12 month P/E ratio is 13.2, based on its trailing EPS of $4.39. The company has a forward P/E ratio of 12.4 according to its forward EPS of $3.83 -- 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 third quarter of 2024, the basic materials sector has an average P/E ratio of 20.25, and the average for the S&P 500 is 29.3.
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Newmont was $-891000000 as of its last annual report. The balance of cash flows represents the capital that is available for re-investment in the business, or for payouts to equity investors as dividends. The company's average cash flow over the last 4 years has been $1.32 Billion and they've been growing at an average rate of -26.9%. NEM's weak free cash flow trend shows that it might not be able to sustain its dividend payments, which over the last 12 months has yielded 1.7% to investors. Cutting the dividend can compound a company's problems by causing investors to sell their shares, which further pushes down its stock price.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Newmont's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 2.07, but is still below the average P/B ratio of the Basic Materials sector, which stood at 2.31 as of the third quarter of 2024.
Since it has a Very low P/E ratio, an average P/B ratio, and positive cash flows with a downwards trend, Newmont is likely overvalued at today's prices. The company has poor growth indicators because of an inflated PEG ratio and decent operating margins with a negative growth trend. We hope you enjoyed this overview of NEM's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
