Gold Fields Ltd-Spons ADR (NYSE:GFI) Presents a Compelling Value Investment Case

For investors aiming to construct a portfolio on value investing principles, the central task is finding companies priced below their inherent value. This approach, established by Benjamin Graham and used by Warren Buffett, requires a systematic hunt for stocks where the market price is less than an assessment of the company's actual worth. The aim is to locate good businesses that are temporarily discounted or ignored, offering a "margin of safety" against mistakes. One method to use this idea is by filtering for companies with good basic operations, good profit generation, stable finances, and positive expansion, that are also priced well by the market. This mix indicates a stock could be priced low, not just inexpensive because of weak future performance.

A recent filter using these "acceptable value" measures has identified Gold Fields Ltd-Spons ADR (NYSE:GFI) for closer review. The South African gold mining company shows a notable situation where good operational results meet a price assessment that seems low compared to its financial numbers.

Valuation: The Foundation of the Idea

The main filter in a value search is a good price, which gives the initial margin of safety. Gold Fields does well here, with a ChartMill Valuation Rating of 8 out of 10. While its standard Price-to-Earnings (P/E) ratio of 22.50 matches the wider S&P 500, more future-oriented and industry-specific measures show a better view.

• Future-Oriented Measures Are Notable: The company's Price-to-Forward Earnings ratio is 9.32, which is much lower than both the S&P 500 average (24.01) and 88% of similar companies in the metals and mining sector. This implies the market is anticipating little future expansion.
• Good Expansion Adjustment: The PEG Ratio, which modifies the P/E for projected earnings expansion, is very low. This shows the stock's price is fair even considering its high expansion estimates, an important test for value investors to prevent "value traps."
• Cash Flow and EBITDA: The stock also appears good on a Price-to-Free Cash Flow and Enterprise Value-to-EBITDA basis, trading at a lower price than about 75% of its industry rivals.

For a value investor, these measures imply the market may not completely acknowledge the company's earnings ability or future possibility, forming a potential opening.

Profit and Expansion: Confirming Quality

An inexpensive stock is only a sound investment if the company is operationally healthy and expanding. This is where Gold Fields separates from a basic numerical discount. Its ChartMill Profit Rating is a high 9, and its Expansion Rating is a higher 9.

• High Returns: The company produces strong returns on its assets (17.34%) and invested capital (22.56%), doing better than over 95% of its industry peers. High returns on capital are a sign of a well-run business with a lasting edge.
• Increasing Margins: Profit, Operating, and Gross Margins are not only some of the best in the industry but have also been rising steadily in recent years. This pattern of increasing profit generation is a strong force for inherent worth.
• Strong Expansion Path: The company has shown high recent expansion, with Earnings Per Share (EPS) up almost 197% and Revenue up over 50% in the last year. Importantly, this good speed is predicted to persist, with analysts estimating yearly EPS expansion of over 53% in the next years.

This mix is uncommon: a company displaying both high current profit generation and speeding expansion. For the value investor, it tackles a main concern—that a low price might be reasonable because of a worsening business. Here, the operations seem sound.

Financial Condition: Reviewing the Balance Sheet

Financial condition is vital for a value investment to endure economic changes and prevent the problems of high debt. Gold Fields gets an acceptable ChartMill Condition Rating of 6. The report points to a varied but overall workable situation.

• Good Solvency: The company has a healthy Altman-Z score of 7.64, showing a very low short-term chance of financial trouble. Its debt is also well-supported by free cash flow, needing just over two years of FCF to repay all debts—a mark of good solvency.
• Workable Debt: While its Debt-to-Equity ratio is higher than some peers, the report states this is lessened by strong cash flow support. The company is generating worth, as its Return on Invested Capital clearly tops its cost of capital.
• A Point on Liquidity: Current and Quick ratios are sufficient but not outstanding. However, given the company's high profit generation and solvency, these measures are less worrying and probably show the particular capital-heavy character of the mining business rather than a liquidity problem.

Overall, the financial condition is enough to maintain the company's activities and expansion plans without showing a clear warning that would cancel the value idea.

Summary and Investor Points

Gold Fields shows a detailed profile that fits several value investing ideas. It trades at a price that seems separate from its better profit generation and good expansion view, offering a potential margin of safety. The company's high returns on capital and increasing margins imply a high-quality business, while its financial condition, although with some details, seems steady.

Naturally, any investment in a commodity-based business like gold mining holds particular risks, including connection to changing gold prices, political factors in operating areas, and operational difficulties. The value investor must balance these industry-specific risks against the notable operational view.

This review of Gold Fields was found using a structured "Acceptable Value" filtering method. If you want to review other stocks that fit similar standards of good price, profit, condition, and expansion, you can use this filter yourself here.

Disclaimer: This article is for information only and does not form financial guidance, a suggestion, or an offer to buy or sell any security. The review uses data and ratings from ChartMill. Investors should do their own research and think about their personal financial situation and risk comfort before making any investment choices. Past results do not show future outcomes.