Queensland Bauxite Limited (ASX:QBL), a AUDA$103.05M small-cap, is a metals and mining operating in an industry which is sensitive to changes in the business cycle, as it supplies materials for construction activities. Furthermore, the basic materials sector can be affected by shifts in the housing market, as many produced raw materials are components of construction projects. For example, if new housing development slows, the demand for metal products may also decrease. Basic material analysts are forecasting for the entire industry, a positive double-digit growth of 26.31% in the upcoming year , and a massive growth of 40.18% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the metals and mining sector right now. Below, I will examine the sector growth prospects, as well as evaluate whether Queensland Bauxite is lagging or leading its competitors in the industry. View our latest analysis for Queensland Bauxite
What’s the catalyst for Queensland Bauxite’s sector growth?
ASX:QBL Past Future Earnings Jan 12th 18 As a whole, the basic materials sector seems like it has reached maturity in its life cycle. Companies appear to be vastly competitive and consolidation seems to be a common theme. However, the industry is still facing many emerging trends including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the previous year, the industry saw growth of 7.36%, beating the Australian market growth of 6.88%. Queensland Bauxite lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Queensland Bauxite may be trading cheaper than its peers.
Is Queensland Bauxite and the sector relatively cheap?
ASX:QBL PE PEG Gauge Jan 12th 18 The metals and mining sector’s PE is currently hovering around 15x, in-line with the Australian stock market PE of 18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 10.35% on equities compared to the market’s 11.86%. Since Queensland Bauxite’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Queensland Bauxite’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Queensland Bauxite has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of Queensland Bauxite, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Queensland Bauxite fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Queensland Bauxite has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its metals and mining peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Queensland Bauxite’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Queensland Bauxite’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other basic materials stocks instead? Use our free playform to see my list of over 2000 other basic materials companies trading on the market.
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