Newmont Mining Corporation (NYSE:NEM) shares are up more than 5.14% this year and recently decreased -1.37% or -$0.55 to settle at $39.45. U.S. Gold Corp. (NASDAQ:USAU), on the other hand, is up 90.18% year to date as of 01/16/2018. It currently trades at $3.10 and has returned 44.86% during the past week.
Newmont Mining Corporation (NYSE:NEM) and U.S. Gold Corp. (NASDAQ:USAU) are the two most active stocks in the Gold industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
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 isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure 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 USAU has a ROI of -13.60%. The interpretation is that NEM’s business generates a higher return on investment than USAU’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, USAU’s free cash flow per share was -0.10. On a percent-of-sales basis, NEM’s free cash flow was 6.68% while USAU converted -0.01% 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
Balance sheet risk is one of the biggest factors to consider before investing. NEM has a current ratio of 4.20 compared to 7.60 for USAU. This means that USAU 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 0.00 for USAU. NEM is therefore the more solvent of the two companies, and has lower financial risk.
NEM trades at a forward P/E of 28.92, a P/B of 1.89, and a P/S of 2.92, compared to a P/B of 4.08, and a P/S of 5.10 for USAU. 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 -7.59% to its one-year price target of 42.69. Comparatively, USAU is 3.33% relative to its price target of 3.00. This suggests that NEM 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 2.00 for USAU, which implies that analysts are more bullish on the outlook for NEM.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. NEM has a beta of 0.18 and USAU’s beta is 0.94. NEM’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. NEM has a short ratio of 1.81 compared to a short interest of 2.18 for USAU. This implies that the market is currently less bearish on the outlook for NEM.
Newmont Mining Corporation (NYSE:NEM) beats U.S. Gold Corp. (NASDAQ:USAU) on a total of 10 of the 14 factors compared between the two stocks. NEM is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, NEM is the cheaper of the two stocks on book value and sales basis, NEM is more undervalued relative to its price target. Finally, NEM has better sentiment signals based on short interest.