Is the recent stock performance of Newmont Corporation (NYSE: NEM) influenced by its fundamentals in any way?

Most readers already know that Newmont (NYSE: NEM) stock has risen significantly by 30% in the past three months. Since stock prices are generally aligned with a company’s long-term financial performance, we decided to take a closer look at its financial metrics to see if they had a role to play in recent price movements. . In this article, we have decided to focus on Newmont’s ROE.

Return on equity or ROE is a key metric used to assess the efficiency with which the management of a business is using business capital. Simply put, it is used to assess a company’s profitability against its equity.

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How is the ROE calculated?

the return on equity formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, Newmont’s ROE is:

9.8% = $ 2.3 billion ÷ $ 24 billion (based on the last twelve months to March 2021).

The “return” is the profit of the last twelve months. One way to conceptualize this is that for every dollar of shareholder capital it has, the company has made a profit of $ 0.10.

What does ROE have to do with profit growth?

We have already established that ROE serves as an effective gauge to generate profit for the future profits of a business. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate compared to companies that do not. the same characteristics.

Newmont profit growth and ROE of 9.8%

When you first look at it, Newmont’s ROE doesn’t look so appealing. We then compared the company’s ROE to that of the industry as a whole and were disappointed to see that the ROE is 13% below the industry average. However, we are pleasantly surprised to see that Newmont has increased its net income at a significant rate of 72% over the past five years. We think there might be other factors at play here. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout rate.

As a next step, we compared Newmont’s net income growth to that of the industry and luckily we found that the growth observed by the company is above the industry average growth of 21%.

NYSE: NEM Past Earnings Growth May 25, 2021

Profit growth is an important metric to consider when valuing a stock. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This will help them determine if the future of the stock looks bright or worrisome. A good indicator of expected earnings growth is the P / E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So you might want to check if Newmont is trading high P / E or low P / E, relative to its industry.

Is Newmont using its profits effectively?

Newmont has a three-year median payout rate of 35% (where it keeps 65% of its revenue), which is neither too low nor too high. So it looks like Newmont is reinvesting effectively in a way that it sees impressive earnings growth (discussed above) and pays a well-hedged dividend.

In addition, Newmont has been paying dividends for at least ten years or more. This shows that the company is committed to sharing the profits with its shareholders. Our latest analyst data shows the company’s future payout ratio is expected to reach 64% over the next three years. Thus, the expected increase in the payout ratio explains the expected decline in the company’s ROE to 6.7% over the same period.

summary

All in all, it appears that Newmont has some positive aspects for its business. Even despite the low rate of return, the company has shown impressive earnings growth by reinvesting heavily in its business. However, according to the latest forecast from industry analysts, the company’s profits are expected to decline in the future. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.

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This Simply Wall St article is general in nature. It is not a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St does not have any position in the mentioned stocks.
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About Geraldine Higgins

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