Harmony Gold Mining (NYSE:HMY) Presents a Compelling Value Investment Case

For investors looking for chances where a company's market price seems separate from its basic financial soundness, a methodical value investing method can be a useful instrument. This tactic, made famous by Benjamin Graham and Warren Buffett, centers on finding stocks selling for less than their inherent value, a measure of a company's actual worth grounded in its assets, earnings, and future possibilities. The aim is to discover good businesses that are briefly priced too low by the market, giving a possible "margin of safety" for investors with a long view. One way to find such candidates is by searching for companies with good basic condition and earnings that are also available at a low price, a pairing that points to both quality and a chance.

A recent search using these "decent value" ideas has pointed out Harmony Gold Mining Company Limited (NYSE:HMY) as a stock deserving more examination. As a large gold producer with work in South Africa, Papua New Guinea, and Australia, Harmony Gold works in a field known for its ups and downs. However, a detailed inspection of its finances shows a picture that fits the main ideas of value investing, where sound business basics meet a pleasing price.

A Pleasing Price Picture

The most noticeable part of Harmony Gold's present picture is its price, which gets a high 9 out of 10 in ChartMill's basic study. This score shows the stock is low-priced compared to both similar companies in its field and the wider market. For a value investor, this low price is the beginning of the chance.

• Pleasing Earnings Multiples: HMY sells at a Price-to-Earnings (P/E) ratio of 15.02, which is lower than almost 93% of similar companies in the metals and mining field. More pleasing is its forward P/E ratio of only 6.81, based on guessed future earnings, hinting the market has not yet included expected growth.
• Good Cash Flow Price: The company's Price-to-Free Cash Flow ratio is also positive, placed better than 86% of the field. This is an important measure for value investors, as good, steady cash flow is a key sign of financial condition and the ability to pay for work, reduce debt, or give money back to shareholders.
• Growth at a Sensible Price: The low PEG ratio, which changes the P/E for expected earnings growth, shows the stock's present price does not fully pay investors for its future growth possibility. This "growth at a sensible price" situation is a valued find for methods focused on value.

Base of Financial Condition

A low-priced stock is only a sound investment if the company is on firm financial ground—a common value mistake is a cheap stock of a failing business. Harmony Gold's financial condition score of 7 out of 10 suggests a firm base, which gives the steadiness value investors look for.

• Good Solvency: The company shows very good solvency measures. Its Altman-Z score of 7.86 shows a very small short-term chance of financial trouble, doing better than 74% of the field. Also, its small need for debt is shown by a low Debt-to-Equity ratio of 0.04.
• Outstanding Debt Handling: Maybe most striking is the Debt-to-Free Cash Flow ratio of 0.22. This means Harmony Gold could in theory pay off all its existing debt with less than three months of its present free cash flow creation, a position better than 93% of similar companies. This financial room is a major protection against drops in operations or commodity prices.

Earnings Creating Value

Value investing is not only about buying low-priced stocks; it is about buying sound companies at a low price. Harmony Gold's earnings score of 8 out of 10 confirms it is a highly effective operator, a required quality for a lasting investment.

• High Returns on Capital: The company creates striking returns for its shareholders. Its Return on Equity (ROE) of 22.97% and Return on Invested Capital (ROIC) of 20.62% are with the best in the field, doing better than over 93% and 94% of similar companies, in that order. A high ROIC is especially important, as it shows the company is skilled at creating profits from the money it puts back into the business.
• Widening Margins: Harmony Gold's operating margin of 25.71% and profit margin of 15.68% are well above the field's middle point. Notably, these margins have been getting better over recent years, pointing to better operational effectiveness and pricing ability even within a competitive commodity market.

Growth Backing the Idea

Finally, for the low price to fix, there must be a cause or a shown ability to grow. Harmony Gold's growth score of 7 out of 10 shows it is not a still company, adding a moving part to the value case.

• Good Past Growth: Over the last year, the company has provided strong growth, with Revenue going up by 20.39% and Earnings Per Share (EPS) jumping by a striking 66.97%.
• Positive Future Guesses: Experts expect this movement to continue, with EPS guessed to grow at a normal yearly rate of 25.45% in the coming years. This expected growth helps support a higher price and gives a possible way for the market to re-price the stock.

End

Harmony Gold presents a case that fits closely with a methodical value investment structure. It is an earning company with very good financial condition, showing good returns on capital and workable debt. Importantly, it is reaching and is guessed to continue sound growth. Yet, in spite of these quality basics, it is priced at a major discount to its field and the market. This separation between business results and market price is exactly what value investors try to use, giving a possible margin of safety if the company's inherent value is finally seen by the wider market.

For investors curious about examining other stocks that meet similar rules of strong price, condition, earnings, and growth, you can look at more results from this "Decent Value" search here.

Disclaimer: This article is for information only and does not make up financial advice, a suggestion, or an offer or request to buy or sell any securities. The study is based on data and scores given by ChartMill. Investing includes risk, including the possible loss of main amount. You should do your own study and talk with a qualified financial advisor before making any investment choices.