A Deep Dive into the Options Activity Around Newmont (NEM)
Deep-pocketed investors have adopted a bullish approach towards Newmont NEM, and it's something market players shouldn't ignore. Our tracking of public options records at Benzinga unveiled this significant move today. The identity of these investors remains unknown, but such a substantial move in NEM usually suggests something big is about to happen.
We gleaned this information from our observations today when Benzinga's options scanner highlighted 29 extraordinary options activities for Newmont. This level of activity is out of the ordinary.
The general mood among these heavyweight investors is divided, with 48% leaning bullish and 41% bearish. Among these notable options, 9 are puts, totaling $577,129, and 20 are calls, amounting to $1,245,405.
Taking into account the Volume and Open Interest on these contracts, it appears that whales have been targeting a price range from $20.0 to $70.0 for Newmont over the last 3 months.
Assessing the volume and open interest is a strategic step in options trading. These metrics shed light on the liquidity and investor interest in Newmont's options at specified strike prices. The forthcoming data visualizes the fluctuation in volume and open interest for both calls and puts, linked to Newmont's substantial trades, within a strike price spectrum from $20.0 to $70.0 over the preceding 30 days.
Unpacking Newmont's Performance: Is the P/S Ratio Justified?
Newmont is the world's largest gold miner. It bought Goldcorp in 2019, combined its Nevada mines in a joint venture with competitor Barrick later that year, and also purchased competitor Newcrest in November 2023. Its portfolio includes 17 wholly or majority owned mines and interests in two joint ventures in the Americas, Africa, Australia and Papua New Guinea. The company is expected to produce roughly 6.9 million ounces of gold in 2024. However, after buying Newcrest, Newmont is likely to sell a number of its higher cost, smaller mines accounting for 20% of forecast sales in 2024. Newmont also produces material amounts of copper, silver, zinc, and lead as byproducts. It had about two decades of gold reserves along with significant byproduct reserves at the end of December 2023.
In light of the recent options history for Newmont, it's now appropriate to focus on the company itself. We aim to explore its current performance.
A total of 2 professional analysts have given their take on this stock in the last 30 days, setting an average price target of $58.0.
When close to half the companies in the Metals and Mining industry in the United States have price-to-sales ratios (or "P/S") below 1.2x, you may consider Newmont Corporation (NYSE:NEM) as a stock to avoid entirely with its 3.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
With revenue growth that's superior to most other companies of late, Newmont has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Newmont's to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 33%. As a result, it also grew revenue by 19% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 13% each year over the next three years. With the industry predicted to deliver 23% growth each year, the company is positioned for a weaker revenue result.
With this information, we find it concerning that Newmont is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
It comes as a surprise to see Newmont trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
The Verdict: Are Whales Right or is the Market Missing Something?
The recent options activity surrounding Newmont is undoubtedly intriguing, with a considerable number of investors making bullish bets. This could potentially signal an upward movement in the company's share price. However, the company's relatively high P/S ratio compared to its industry peers and its projected revenue growth raises concerns. While Newmont has enjoyed strong revenue growth in recent years, analysts suggest that growth may slow down in the future.
It's important to remember that options trading comes with inherent risks, and it's crucial to conduct thorough research and understand the underlying company's performance before making any investment decisions. As always, investors should rely on their own due diligence and consider seeking professional advice before making any investment choices.
Ultimately, only time will tell whether the whales are right about Newmont or if the market is missing something. This situation underscores the complex interplay between market sentiment, company performance, and investor expectations in the dynamic world of finance. Stay tuned for further developments and analysis as the story unfolds.
