A basic investment method that has lasted for almost one hundred years is the search for companies priced below their worth. This method, created by Benjamin Graham and famously used by Warren Buffett, involves finding stocks selling for less than their true value. The aim is to find good businesses that the market has incorrectly priced for now, providing a possible "margin of safety" for investors. One way to find these chances is by looking for companies that mix good basic financials with appealing prices.
Harmony Gold Mining Co. Ltd. (NYSE:HMY) presents a situation that seems to fit this idea. As a large gold and copper producer with work in South Africa, Papua New Guinea, and Australia, the company works in a field often moved by commodity cycles and investor feeling. A look at its basic financial condition suggests it may be selling for less than its operational power and future possibilities.
Valuation: An Appealing Starting Price
The central idea of value investing is buying an asset for less than its value. Harmony Gold's price measures suggest a notable discount compared to both its field and the wider market. This is important for value investors, as a low buy price compared to earnings and cash flow provides the basic margin of safety.
- Price-to-Earnings (P/E): With a trailing P/E ratio of 14.72, HMY is priced lower than 96% of similar companies in the Metals & Mining field. This ratio is also about half the current average of the S&P 500.
- Forward-Looking Measures: The price becomes even more appealing on a forward basis. A Price/Forward Earnings ratio of 6.58 is seen as very low, again putting HMY in the top 4% of its field for price. In the same way, its ratios for Enterprise Value/EBITDA and Price/Free Cash Flow are lower than over 90% of field competitors.
- Growth Adjustment: The low PEG ratio, which changes the P/E for expected earnings growth, shows the stock's price does not completely show its future growth possibility. This mix of low multiples and high growth expectations is a main target for value-focused growth investors.
Profitability and Financial Condition: A Good Base
A low-priced stock is only a sound investment if the company is financially stable and profitable. A low price on a failing business is a "value trap," not a chance. Harmony Gold's reports show high profitability and strong financial condition, which are needed for surviving economic cycles and paying for future growth.
Profitability Points:
- The company gets top scores for Return on Assets (18.56%), Return on Equity (29.82%), and Return on Invested Capital (22.66%), each doing better than over 95% of the field. This shows very efficient use of capital.
- Margins are good, with a Profit Margin of 19.47% and an Operating Margin of 28.04%, both ranking in the top group of the mining field. These margins have shown betterment in recent years.
Financial Condition Review:
- Ability to pay debt is a major strength. The company has a very low Debt-to-Equity ratio of 0.04 and a very strong Debt-to-Free-Cash-Flow ratio of 0.18, meaning it could pay off all debt in just over two months using its current cash flow. Its Altman-Z score of 6.60 shows a very low near-term chance of financial trouble.
- While its current and quick liquidity ratios are more average compared to similar companies, the analyst report states that this is less of a worry given the company's "very good ability to pay debt and profitability."
Growth: The Driver for Value Recognition
For a value investment idea to succeed, the company must have a way for its true value to increase or be seen by the market. Harmony Gold is not a still business, it is showing strong growth, which can help reduce the space between its market price and seen value.
- Past Results: The company has given notable recent results, with Earnings Per Share (EPS) increasing by nearly 67% and Revenue growing by over 20% in the last year.
- Future Predictions: This speed is expected to continue. Analysts predict average yearly EPS growth of over 30% and Revenue growth of nearly 15% in the coming years. This forward growth helps support the price and provides a reason for possible price increase.
Conclusion and Investor Points
Based on a basic analysis using the value investing structure, Harmony Gold Mining seems to present an appealing profile. It trades at a large discount to field and market averages while showing top-level profitability, a very strong balance sheet, and speeding growth. This mix speaks to the main worries of a value investor: it tries to avoid paying too much (price), makes sure the business is lasting (condition & profitability), and finds a reason for the market to re-price the stock (growth).
It is, however, important to remember the setting. The company works in the changing mining field, where results are connected to commodity prices, political factors in its work regions, and currency changes. These large-scale risks are natural to the field and must be balanced against the good company-specific basics.
Find More Possible Value Stocks The analysis of Harmony Gold was found using a systematic search for "reasonable value" stocks. If this method fits your investment way, you can examine other companies that meet similar standards of good price, profitability, condition, and growth. Click here to view the current results of this search method.
For a full breakdown of all the basic measures behind Harmony Gold's ratings, you can see the full ChartMill Basic Analysis Report for HMY.
Disclaimer: This article is for information and learning only and does not form a suggestion to buy, sell, or keep any security. The analysis is based on given data and basic reports. All investing includes risk, including the possible loss of the original amount. Investors should do their own complete research and think about their personal money situation and risk comfort before making any investment choices.
