Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Barrick Gold (NYSE:ABX) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Barrick's story, and we'll be grading the quality of that story in several ways:

  • Growth: are profits, margins, and free cash flow all increasing?
  • Valuation: is share price growing in line with earnings per share?
  • Opportunities: is return on equity increasing while debt to equity declines?
  • Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Barrick's key statistics:

ABX Total Return Price Chart

ABX Total Return Price data by YCharts

Passing Criteria

3-Year* Change

Grade

Revenue growth > 30%

48.6%

Pass

Improving profit margin

(97.5%)

Fail

Free cash flow growth > Net income growth

72.5% vs. (193.5%)

Pass

Improving EPS

(153.5%)

Fail

Stock growth (+ 15%) < EPS growth

(55.7%) vs. (153.5%)

Fail

Source: YCharts. * Period begins at end of Q2 2010.

ABX Return on Equity Chart

ABX Return on Equity data by YCharts

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(115%)

Fail

Declining debt to equity

174.4%

Fail

Dividend growth > 25%

(58.3%)

Fail

Free cash flow payout ratio < 50%

Negative FCF

Fail

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we're going
Barrick Gold earned only two out of nine possible passing grades today, and some of these failures look really, really ugly -- the gold miner's trailing 12-month net losses have ballooned to over $10 billion. Despite promising revenue growth over the past three years, Barrick's operational costs have crushed all hopes of profitability, at least in the near term. As a result, Barrick has raised a significant amount of debt to make short and long-term investments in its business, costing it another failing grade on this test. Is there any hope left for Barrick today?

Over the past four years, the cost of producing one ounce of gold for Barrick, Goldcorp (NYSE:GG) and Newmont (NYSE:NEM) has been increasing at an annualized rate of 19.3%, 5.7% and 21.3% respectively. My Foolish colleague Rupert Hargreaves points out that the price of gold has also declined modestly, which has saddled gold miners with writedowns and steep losses. As a result, Barrick had to cut its capital expenditures by more than $4 billion over a four year term. In addition, Barrick has ambitious plans to divest high-cost production mines to prop up its cash flow. The company has also cut its headcount by 30%.

High cost overhangs have hindered the entire gold-mining industry. Barrick's rival Newmont has been aggressively slashing staff headcounts in Australia, largely due to the drastic increase in wages across the region. Newmont also wrote down $1.61 billion on its Hope Bay mine in Canada, and the writedowns are expected to continue with falling gold prices and rising superfluous costs. Fool contributor Matt DiLallo notes that Goldcorp recently marked a $2 billion impairment charge on its Penasquito mine, and has also significantly cut its capital expenditures. However, there is good news for gold mining investors, as the rising demand of gold from both India and China could help buoy the metal's price, particularly if panicked Indian investors turn to gold as an inflation hedge. According to the World Gold Council, the consumer demand of gold in the Indian markets could outpace 1,000 tons this year.

High costs aren't the only obstacle to Barrick's profitability -- the Chilean government recently imposed a $15.8 million fine on Barrick for environmental violations in the Pascua-Lama mine. The company has been forced to shut down that operation, which has had a massive impact on the company's finances, as Pascua-Lama accounts for 11% of Barrick's total gold production. My fellow Fool Marie Palumbo notes that Barrick will submit a new water management plan to the Chilean government, which could soon reverse the company's fortunes.

Putting the pieces together
Today, Barrick has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.