For investors looking for chances where a company's market price seems lower than its basic worth, a disciplined screening method is necessary. One good way is to look for stocks that join an attractive valuation with good basic business condition. This approach focuses on companies selling for less than their true value, shown by a good valuation score, while also needing proof of operating strength through acceptable marks in profitability, financial condition, and expansion. This multi-part test helps to steer clear of the common "value trap", a stock that is low-priced for a cause, and instead finds possibly underrated companies with the basic ability to achieve their value in time.
A recent filter using this thinking has pointed to Gold Fields Ltd-Spons ADR (NYSE:GFI) as a candidate deserving more review. The worldwide gold miner shows a picture that matches the main ideas of value investing, where the aim is to buy a dollar's worth of assets for fifty cents. We will look at the key basic supports that make this view.
Valuation: An Uncommon Mix of Value and Expansion
The main attraction for a value investor is a good entry price. Gold Fields gets a good Valuation Score of 7 out of 10 from ChartMill, meaning it is priced well compared to its financial situation. This mark becomes more interesting when seen with other facts.
- Future-Looking Numbers Stand Out: While the normal Price-to-Earnings (P/E) ratio of 25.60 matches the wider S&P 500, more future-looking measures say something else. The company's Price/Forward Earnings ratio is 10.91, which is seen as fair on its own and clearly lower than 85% of similar companies in the metals and mining business.
- Paid for Expansion: Maybe the most clear number is the PEG ratio, which changes the P/E for expected earnings expansion. Gold Fields' low PEG ratio shows the market is not completely counting its good expansion path, a usual signal of possible underrating. Also, valuation measures like Enterprise Value to EBITDA and Price/Free Cash Flow also place the company as less expensive than a large part of its industry rivals.
For a value plan, these numbers are key. They hint the market may be using a general discount to the mining business or missing company-specific good points, giving a possible safety buffer for investors.
Profitability and Expansion: The Driver of Value Achievement
A low-cost stock is only a sound investment if the company is basically healthy and expanding. This is where Gold Fields' picture gets especially notable, as it displays the effective mix of high profitability and good expansion, a pair that can quickly shrink the space between market price and true value.
The company has a first-class Profitability Score of 10/10. Key good points include:
- Excellent Margins: An Operating Margin of 53.08% and a Profit Margin of 28.72% place in the top group of the industry, showing very efficient operations.
- High Returns: Returns on Assets (17.34%), Equity (30.95%), and Invested Capital (22.56%) are all very good, meaning management is using capital well to create shareholder value.
Adding to this excellent profitability is an Expansion Score of 9/10.
- Strong Recent Results: Over the last year, Earnings Per Share (EPS) rose by 196.68% and Revenue increased by 50.41%.
- A Good Future View: Experts think this speed will keep going, with EPS predicted to grow by an average of 53.87% each year in the near future.
For the value investor, this expansion picture is important. It gives the push that can lead to a new rating of the stock, as increasing earnings make an already fair valuation seem even more attractive with time.
Financial Condition: Reviewing the Balance Sheet
A company's skill to carry out its expansion plans and handle economic ups and downs relies on a steady financial base. Gold Fields gets a Condition Score of 6/10, meaning a generally sound but not perfect financial state.
The report notes several positive stability factors:
- A good Altman-Z score of 8.37 means a very small short-term bankruptcy danger.
- A Debt-to-Free Cash Flow ratio of 2.08 is positive, showing the company could in theory pay all debt in just over two years with its present cash flow.
Points of attention include a Debt-to-Equity ratio that is higher than many industry peers and current/quick ratios that are on the low end. However, the review puts this in perspective by noting the company's excellent profitability and the fact its small debt is well-supported by good free cash flow. For a value investor, this varied but overall acceptable condition score hints the company is not over-borrowed to a harmful point, letting it pay for operations and expansion without too much risk.
Conclusion
Gold Fields Ltd. presents an interesting case for a value-focused filter plan. It is not only a numerically low-cost stock, it is a profitable, expanding company trading at a valuation that seems to lower its future possibility. The good scores in valuation, profitability, and expansion create a combined argument: the market may be giving a high-quality asset at a price that does not fully show its earning ability or expansion path. While investors should always think about business-specific dangers, like product price changes, the basic picture found by this filter matches the aim of finding underrated companies with the operating strength to support a higher price.
Interested in finding more stocks that match this picture? You can use a similar "Good Value" filter yourself to find other companies with good valuations and sound basics via this link.
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Disclaimer: This article is for information only and does not make financial advice, a suggestion, or an offer or request to buy or sell any securities. The review is based on data and scores from ChartMill, and investors should do their own study and talk with a qualified financial advisor before making any investment choices. Past results do not show future outcomes.
