AngloGold Ashanti PLC (NYSE:AU): A Value Investing Opportunity with Strong Financials and Undervaluation

Value investing, a strategy introduced by Benjamin Graham and later made famous by Warren Buffett, centers on finding stocks priced below their true worth. This method highlights financial stability, earnings potential, and steady growth while aiming to reduce risks by seeking a safety buffer. A practical way to use this approach is through fundamental analysis to find companies with solid financials but lower market prices. ANGLOGOLD ASHANTI PLC (NYSE:AU) stands out as a potential fit, displaying strong financials and an appealing price.

Valuation: An Attractive Opportunity

The core of value investing is spotting stocks priced below their real value. AngloGold Ashanti’s valuation numbers hint at possible undervaluation:

• P/E Ratio (15.52) is lower than the industry average (26.70) and the S&P 500 (26.84), suggesting a more affordable earnings multiple.
• Forward P/E (11.20) strengthens this view, trading well below the broader market (35.29).
• Price/Free Cash Flow looks good, with 87.8% of industry competitors priced higher, indicating solid cash flow relative to market value.
• A low PEG ratio, which includes growth, implies the stock isn’t overvalued even when considering future earnings.

For value investors, these figures point to a chance—AngloGold’s earnings and cash flow are priced cautiously compared to peers, providing a safety buffer.

Financial Health: A Solid Base

A company’s resilience during economic challenges is vital in value investing. AngloGold performs well on stability and liquidity:

• Altman-Z Score (4.75) shows minimal bankruptcy risk, beating 71.8% of the metals and mining sector.
• Debt/FCF (1.31) means the company could clear its debt in just over a year using free cash flow—a sign of financial adaptability.
• Current Ratio (2.99) and Quick Ratio (2.22) reveal enough liquidity to handle short-term debts.

Sturdy financials lower risk, a core idea in value investing. AngloGold’s skill in managing debt and keeping liquidity matches Graham’s focus on financial strength.

Profitability: Strong Earnings and Returns

Value investors look for firms with lasting competitive edges, often seen in profitability numbers. AngloGold does well here:

• Return on Equity (27.35%) and Return on Invested Capital (19.74%) place in the top 4% and 3% of the industry, respectively.
• Operating Margin (35.00%) and Profit Margin (22.19%) are far above industry norms, showing efficient operations.
• Steady positive cash flow over the last five years highlights reliable earnings.

High profitability suggests AngloGold can reinvest wisely or reward shareholders—qualities value investors value for long-term prospects.

Growth: Historical Gains with a Careful Future View

While value investing doesn’t rely on rapid growth, steady progress supports true worth. AngloGold shows mixed signals:

• Past Growth: Revenue rose 26.4% YoY, with EPS jumping 517.5%, though from a small base.
• Future Estimates: Revenue is expected to grow 8.3% yearly, but EPS might drop slightly (-1.3%).
• Slowing growth rates call for caution, but the company’s profitability and valuation may offset weaker earnings growth.

For value investors, the question is whether current prices fairly reflect even modest growth. AngloGold’s valuation seems to account for these challenges, leaving potential upside if performance improves.

Dividend: An Extra Benefit for Value Strategies

Though not a main priority, dividends can boost returns in value investing. AngloGold provides:

• A 2.95% yield, above the industry (2.61%) and S&P 500 (2.36%) averages.
• A 39.6% payout ratio, indicating dividends are manageable without stressing cash flow.

Conclusion: A Value Pick Worth Examining

AngloGold Ashanti makes a strong case for value investors: priced low relative to earnings and cash flow, financially sound, and highly profitable. While growth prospects are modest, the stock’s safety margin and solid financials align with Graham’s principles.

For investors hunting for similar opportunities, our Decent Value Stocks screen lists more stocks meeting these standards.

Disclaimer: This analysis is not investment advice. Do your own research or consult a financial advisor before making investment choices.