Valuation analysis for Barrick Gold Corporation (USA) (NYSE:ABX)
Is it possible to find value in beaten down Gold plays? It sure is, but we can't try to catch a falling knife. Instead we must be much more careful, and disciplined. It starts with a fair value analysis.
Both the earnings and revenue charts for Barrick Gold Corporation (USA) (NYSE:ABX) is awful. Earnings have been decimated, revenues have come down sharply, and the stock is reacting accordingly.
The stock still pays a modest dividend, but the dividend has also been reduced considerably over recent quarters while both earnings and revenue have declined.
A proper evaluation of fair value given the substantial declines in both earnings and revenue is challenging because the earnings growth rate is negative and the associated peg ratio is also negative. That means, when we compare the trailing 12 month quarterly earnings results for Barrick Gold to the same results from the prior year, the more current data is less, proving that the company has actually earned less, but raw EPS Data is still positive.
Although the growth rate is negative and although earnings have declined substantially, raw EPS numbers are not negative, suggesting that the company is properly managing itself during this period of retracement. That is a relatively positive sign, because if management is capable of navigating the down cycle it hopefully will be very capable of managing an up cycle if one presents itself.
According to our real time trading report for Barrick Gold the stock has recently broken below the longer term support level identified in our real time trading report and that former level of support has now been converted into resistance. This presents a bearish technical case for Barrick Gold at this time, but it also presents a reversal catalyst for the stock as well. We would absolutely avoid ABX if the stock remains below what is now converted resistance, but if the stock manages to break back above this level it would be a buy according to our combined analysis again. Right now, the stock is an avoid with a possible reversal trigger identified as former longer term support.
Nothing is positive at this time for Barrick Gold. The earnings growth rate is negative, revenue trends are down, and the stock has broken below longer term support. There is no reason to buy Barrick Gold immediately, but if the stock reverses higher and brakes back above former levels of support that have since been converted into resistance buy signals will surface on a technical basis. It is doubtful that the fundamental observations will improve before technical buy signals surface, but if technical buy signals do surface it could be a leading indicator that smart money is beginning to invest in the stock again in advance of fundamental stabilization. Right now, we would avoid Barrick Gold and look for buy signals based on a reversal higher only.