The stock of Barrick Gold (NYSE:GOLD, 30-year Financials) appears to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $21.3451 per share and the market cap of $38.1 billion, Barrick Gold stock shows every sign of being fairly valued. GF Value for Barrick Gold is shown in the chart below.
Because Barrick Gold is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Barrick Gold has a cash-to-debt ratio of 1.10, which is worse than 72% of the companies in Metals & Mining industry. GuruFocus ranks the overall financial strength of Barrick Gold at 6 out of 10, which indicates that the financial strength of Barrick Gold is fair. This is the debt and cash of Barrick Gold over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Barrick Gold has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $12.8 billion and earnings of $1.39 a share. Its operating margin is 38.27%, which ranks better than 90% of the companies in Metals & Mining industry. Overall, the profitability of Barrick Gold is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Barrick Gold over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Barrick Gold’s 3-year average revenue growth rate is in the middle range of the companies in Metals & Mining industry. Barrick Gold’s 3-year average EBITDA growth rate is 0.1%, which ranks in the middle range of the companies in Metals & Mining industry.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Barrick Gold’s ROIC is 9.01 while its WACC came in at 1.67. The historical ROIC vs WACC comparison of Barrick Gold is shown below:
To conclude, the stock of Barrick Gold (NYSE:GOLD, 30-year Financials) is estimated to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Metals & Mining industry. To learn more about Barrick Gold stock, you can check out its 30-year Financials here.
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