Newmont Mining Corporation (NYSE:NEM) shares are up more than 3.52% this year and recently increased 1.30% or $0.5 to settle at $38.84. Jagged Peak Energy Inc. (NYSE:JAG), on the other hand, is down -4.18% year to date as of 01/10/2018. It currently trades at $15.12 and has returned -4.85% during the past week.
Newmont Mining Corporation (NYSE:NEM) and Jagged Peak Energy Inc. (NYSE:JAG) are the two most active stocks in the Gold industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect NEM to grow earnings at a 3.02% annual rate over the next 5 years.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Newmont Mining Corporation (NEM) has an EBITDA margin of 7.73%. This suggests that NEM underlying business is more profitable NEM’s ROI is -4.10% while JAG has a ROI of 1.70%. The interpretation is that JAG’s business generates a higher return on investment than NEM’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. NEM’s free cash flow (“FCF”) per share for the trailing twelve months was +0.84. Comparatively, JAG’s free cash flow per share was -0.55. On a percent-of-sales basis, NEM’s free cash flow was 6.68% while JAG converted -0.15% of its revenues into cash flow. This means that, for a given level of sales, NEM is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. NEM has a current ratio of 4.20 compared to 0.40 for JAG. This means that NEM can more easily cover its most immediate liabilities over the next twelve months. NEM’s debt-to-equity ratio is 0.36 versus a D/E of 0.05 for JAG. NEM is therefore the more solvent of the two companies, and has lower financial risk.
NEM trades at a forward P/E of 28.48, a P/B of 1.86, and a P/S of 2.87, compared to a forward P/E of 24.00, a P/B of 4.77, and a P/S of 17.07 for JAG. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. NEM is currently priced at a -9.02% to its one-year price target of 42.69. Comparatively, JAG is -11.99% relative to its price target of 17.18. This suggests that JAG is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.30 for NEM and 1.90 for JAG, which implies that analysts are more bullish on the outlook for NEM.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.NEM has a short ratio of 1.87 compared to a short interest of 6.07 for JAG. This implies that the market is currently less bearish on the outlook for NEM.
Newmont Mining Corporation (NYSE:NEM) beats Jagged Peak Energy Inc. (NYSE:JAG) on a total of 8 of the 14 factors compared between the two stocks. NEM is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, NEM is the cheaper of the two stocks on book value and sales basis, Finally, NEM has better sentiment signals based on short interest.