Newmont Corporation (ASX: NEM) has sold off sharply since closing at 52-week highs of $87.35 in November.
The stock is down 25% from that mark and currently fetches $65.20 apiece at the time of writing.
The question now is whether this makes Newmont a cheap ASX stock or whether the market has accurately reflected the company's value.
Zooming out, Newmont is up more than 7% this year to date in a world where gold prices have rallied more than 35%. Let's see what the experts think.
Newmont shares ride through difficult November
A lower share price doesn't automatically equal a cheap ASX stock. It depends on what caused it in the first place.
The heavy sell-off in Newmont shares can be traced back to the company's third-quarter FY24 results.
Put bluntly, they were a mixed bag. They failed to meet market expectations, with earnings per share (EPS) of US81 cents missing consensus forecasts by US5 cents apiece.
Production did increase by 4% for the quarter to 1.7 million ounces, but the growth was underwhelming against the backdrop of record gold prices.
The yellow metal has rallied 34% in the past twelve months, one of its best years on record. This rally was driven by global central banks buying in droves and a flight to safety amid economic uncertainty.
After hitting a record high of US$2,785 per ounce on October 30, the metal took a sharp turn following the US election.
Prices have since eased to around US$2,662 per ounce at the time of writing, dampened by a strengthening US dollar and rising bond yields.
But in all fairness, Newmont's results only missed expectations; they weren't at all bad. Net profits were still up c. $830 million, and it paid a dividend of US25 cents per share.
Is Newmont a cheap ASX stock?
Analysts at Macquarie reckon Newmont is a cheap ASX stock. The broker rates it a buy with a price target of $82, highlighting a potential upside of more than 25% at the time of writing.
The broker said Newmont's strategic asset sales, which have capitalised on high gold prices, strengthen its balance sheet.
It says this positions the company well for potential share buybacks.
But what about gold's outlook? UBS forecasts gold prices could hit US$2,800 in 2025, driven by renewed demand from central banks and heightened geopolitical tensions.
China's central bank has already resumed buying this month.
This is a critical factor for a company like Newmont because higher gold prices will lead to higher revenues and, potentially, margins.
But the question is whether it's a cheap ASX stock. And that means getting a good price.
There are two ways to look at it in my view. One is the potential value, so the potential upside based on price targets. The second is what you pay to acquire the stock.
According to CommSec, consensus estimates project Newmont to earn $2.49 per share in 2024, stretching up to $2.61 per share in 2025.
At the current share price, this equals a price-to-earnings (P/E) ratio of 25x, meaning each dollar of future profits will cost $25.
That doesn't seem like a cheap ASX stock in my view, especially when the iShares Core S&P/ASX 200 ETF (ASX: IOZ), which tracks the S&P/ASX 200 Index (ASX: XJO), has a 22x P/E ratio at the time of writing.
Foolish takeout
At $65.20, Newmont's shares are trading well below their recent highs, begging the question of whether it's a cheap stock.
It depends on how you look at it really. On the one hand, Macquarie's price target has a 25% gap from Newmont's current share price. Is this cheap?
You'd be paying 25 times the estimated earnings for 2025 to participate in that good fortune. That doesn't seem relatively cheap. But then again, it really depends on what gold prices do from here.
In the last 12 months, Newmont is up more than 10%.
