Katoro Gold PLC (AIM:KAT), a GBP£3.52M small-cap, operates in the basic materials industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building 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 strong double-digit growth of 23.50% in the upcoming year , and an enormous growth of 39.19% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. Is the metals and mining industry an attractive sector-play right now? Below, I will examine the sector growth prospects, as well as evaluate whether KAT is lagging or leading its competitors in the industry. View our latest analysis for Katoro Gold
What’s the catalyst for KAT’s sector growth?
As a whole, the basic materials sector seems to be predominantly mature in terms of its industry life cycle. Companies appear to be vastly competitive and consolidation seems to be a inevitable. However, the industry is still facing many emerging trends including the reduction of waste, raw material inflation, and innovation in global supply chain management. Over the past year, the industry saw growth in the thirties, beating the UK market growth of 11.30%. Given the lack of analyst consensus in KAT’s outlook, we could potentially assume the stock’s growth rate broadly follows its metals and mining industry peers. This means it is an attractive growth stock relative to the wider UK stock market.
Is KAT and the sector relatively cheap?
The metals and mining industry is trading at a PE ratio of 14x, in-line with the UK stock market PE of 19x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 9.36% compared to the market’s 12.78%, potentially indicative of past headwinds. Since KAT’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge KAT’s value is to assume the stock should be relatively in-line with its industry. In terms of returns, KAT generated 10.51% in the past year, which is 1.15% over the metals and mining sector.
What this means for you:
Are you a shareholder? Metals and mining stocks are currently expected to grow faster than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards high-growth. The industry is trading relatively in-line with the market, which means you may be paying a fair value for the materials stocks should you wish to accumulate more of your holdings.
Are you a potential investor? If you’ve been keeping an eye on the metals and mining sector, now is the right time to dive deeper into the stock-level. The high growth prospect makes stocks such as KAT a more appealing investment case, though the industry is trading relatively in-line with the rest of the wider marker. I suggest you examine the stock’s fundamentals, such as its financial health, before you make an investment decision.
For a deeper dive into Katoro Gold’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.