Barrick Gold Corp (NYSE:GOLD) engages in the production and sale of gold and copper, as well as related activities such as exploration and mine development. The company was founded in 1983 and is headquartered in Toronto, Canada.
As of 16 Mar 2022, Barrick Gold Corp's stock is trading at $23.6 and is up by 27% year-to-date (YTD). Over the past year, the stock is up by 14% whilst the S&P 500 is also up by 9%, meaning the stock has outperformed the broader market by approximately 5% over this period.
But is Barrick Gold Corp worth considering as a long-term investment? Let’s analyze whether the stock has potential or if it’s one to avoid.
Why are fundamental metrics important?
To better understand the underlying trends at Barrick Gold Corp and analyze if the company will be a good investment, it’s good to start by getting an overview of the fundamentals.
‘Fundamentals’ are a set of key metrics which can help you, as an investor, assess the financial health of the organisation as well as its growth prospects.
There are a number of fundamental metrics to look at, but the ones we like to focus on are price to earnings ratio (P/E ratio), earnings per share (EPS), price to sales ratio (P/S ratio) and debt. When they are analyzed together, these metrics can start to 'paint the picture' and help you understand if a company is a solid investment.
With this in mind, let's take a look at Barrick Gold Corp’s fundamentals and see if they can tell us anything about the company’s potential as an investment.
Barrick Gold Corp's stock by the numbers
EPS is the first metric we'll look at, and this is used by investors to gauge the profitability of a company on a 'per share' basis. It is calculated as net income (after dividends on preferred stock) divided by the number of outstanding shares.
Based on its most recent financial statements, Barrick Gold Corp has EPS of 1.14, and year-on-year, this metric was down by 13%, which is underwhelming.
Next, let's look at GOLD's P/S ratio, which looks at the company's stock price compared to its sales (revenues). It is calculated as the current price divided by sales for the previous 12 months, and is useful because it helps us understand how much investors are willing to pay for every dollar of a company's revenues. What is considered a 'high' or 'low' P/S ratio can vary across different sectors, so the best way to objectively benchmark it is to compare a company against its industry peers.
With a P/S ratio of 3.54, the company is fairly priced (or even cheap) compared to similar companies within the same sector. The sector-wide average is 4.8, which is 26% lower than Barrick Gold Corp's, based on its most recent figures.
Analyzing a company's price to earnings (P/E) ratio is also helpful to tell us how cheap or expensive a stock is, or how much of a premium investors are willing to pay for a company's earnings. It is calculated by taking the price of a stock and dividing this by the earnings per share. A higher ratio suggests that the stock is expensive in relation to its earnings, and a lower ratio indicates the opposite.
Barrick Gold Corp has a P/E ratio of 20.91, based on its most recent financial statements. This is 4% lower than the average P/E ratio across the company's industry (which is 21.7) and indicates that the stock may be undervalued compared to companies in the same sector.
Another key metric to look at is a company's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. It is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book'). P/BV is used by value investors to identify potential investments, and a P/BV of 1 is usually considered a solid investment.
Barrick Gold Corp's P/BV is 1.77, based on figures from its last reported balance sheet, and this is 16% lower than the average across its industry, which is 2.1.
Is Barrick Gold Corp a buy in 2022?
To summarise, we’ve noticed some encouraging trends at this gold company.
In particular, the stock is up by 27% YTD and the company has a lower P B/V and lower P/S ratio compared to competitors within the same industry. These are encouraging signs.
Whilst we can't ignore the fact that it is not showing positive EPS growth y/y, we think the company is worth watching.
However, as with any stock, there are additional factors to consider before making an investment decision. This article does not look at the macro environment where geopolitical headwinds, internal company changes and individual technicalities in the way a company conducts its business can have a significant impact on a company's long term outlook. Please do your own due diligence before buying shares.