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Why Barrick Gold (ABX) Tumbled Into the Red on Monday

NEW YORK (TheStreet) -- Barrick Gold (ABX) was one of the casualties in the gold mining sector on Monday after gold prices tumbled to their lowest levels since July.

The Toronto-based gold miner shed 5.4% to $15.60, just one of the companies suffering from an industry-wide sell-off.

Gold prices were lower after November manufacturing data came in at the highest levels since mid-2011, sparking concerns the Federal Reserve would begin tapering monetary stimulus. By late afternoon, bullion was selling 2.3% lower to $1,219.71 an ounce.

Others affected included Yamana Gold (AUY), Silver Wheaton Corp  (SLW) and Eldorado Gold (EGO).

Gold investments have become unfavorable over the year as low inflation created an adverse environment and investors shirked precious metals for more preferable equities. Year to date, the SPDR Gold Trust (GLD) has dropped 27.4% and the iShares Gold Trust (IAU) has fallen 27.3%, while the S&P 500 climbed 26.6%.

In other news, Barrick is reportedly preparing to announce former Goldman Sachs president John Thornton's ascension to the role of chairman at this Wednesday's board meeting, taking over the role from founder Peter Munk. Bloomberg reports expectations have been high Thornton would take over the position after he assumed the role of co-chairman last year.

At the time of publishing, a Barrick spokesperson had not responded to requests for comment.

TheStreet Ratings team rates Barrick Gold Corp as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate Barrick Gold Corp (ABX) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Barrick Gold Corp has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, Barrick Gold Corp swung to a loss, reporting -56 a share vs. $4.48 a share in the prior year.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 73.5% when compared to the same quarter one year ago, falling from $649 million to $172 million.
  • The debt-to-equity ratio of 1.13 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, ABX maintains a poor quick ratio of 0.81, which illustrates the inability to avoid short-term cash problems.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, Barrick Gold Corp's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 52.64%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 72.72% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

Stock quotes in this article: ABX 

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