Newmont (NEM) is back in focus after a sharp move in the stock following a strong jump in gold prices, as investors weighed lower production, rising costs and reaffirmed full year guidance.

At a share price of US$135.14, Newmont has enjoyed a strong run, with a 30 day share price return of 45.02% and a year to date share price return of 33.51%. Total shareholder returns of 88.56% over one year and 265.31% over three years suggest that investors have already been rewarding the stock for perceived growth potential and higher exposure to gold prices, even as recent gains have been sharpened by the latest surge in the metal and renewed focus on execution and costs.

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After such a steep climb, Newmont now trades slightly above the average analyst target and above one intrinsic value estimate. The key issue is where fair value lies within that range and how much optimism is already reflected in the price.

Most Popular Narrative: 19.6% Undervalued

At a last close of $135.14, the most followed narrative for Newmont points to a fair value of $168.00, which implies meaningful upside if those assumptions play out.

Newmont's aggressive divestment of non-core assets, evidenced by $3 billion in expected after-tax proceeds this year, is described as rapidly enhancing capital efficiency and supporting a capital return program that includes a new $3 billion share repurchase, with the aim of accelerating per-share free cash flow and EPS growth relative to peers.

The $168.00 figure for Newmont is based on assumptions that include faster revenue expansion, wider profit margins and a leaner share count.

Result: Fair Value of $168.00 (UNDERVALUED)

However, Newmont's narrative still hinges on gold retaining its safe haven appeal, as well as on managing ore grade and integration risks that could pressure future profitability.

Another View: Newmont Through The SWS DCF Lens

The bullish narrative around Newmont points to a fair value of $168.00 and labels the stock as undervalued. The SWS DCF model tells a different story. At a share price of $135.14, it points to a future cash flow value of $127.81, which suggests Newmont is trading above that estimate. The question is which set of assumptions you trust more: the optimistic earnings path or the more conservative cash flow view.

For a closer look at how those cash flows are modeled and discounted, take a moment to review the Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Newmont for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this mix of enthusiasm and caution around Newmont feels familiar, consider taking action while the details are fresh and weigh both sides of the story using the 4 key rewards and 1 important warning sign

Looking for more ideas beyond Newmont?

Newmont may be front of mind today, but your next opportunity could be elsewhere. Do not let it slip past while you are focused on a single stock.

• Target potential mispricings by reviewing the 49 high quality undervalued stocks that combine solid fundamentals with attractive valuations.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.