Gentor Resources Inc (TSXV:GNT), a CADCA$3.29M small-cap, is a metals and mining operating in an industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. Moreover, 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 25.66% in the upcoming year , and a massive growth of 64.14% over the next couple of years. This rate is larger than the growth rate of the Canadian stock market as a whole. Should your portfolio be overweight in the metals and mining sector at the moment? In this article, I’ll take you through the sector growth expectations, and also determine whether GNT is a laggard or leader relative to its basic materials sector peers. Check out our latest analysis for Gentor Resources
What’s the catalyst for GNT’s sector growth?
Overall, 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 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 over 50%, beating the Canadian market growth of 8.26%. GNT 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 GNT may be trading cheaper than its peers.
Is GNT and the sector relatively cheap?
metals and mining companies are typically trading at a PE of 11x, below the broader Canadian stock market PE of 17x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 8.60% on equities compared to the market’s 9.62%. Since GNT’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge GNT’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? GNT has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of GNT, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how GNT fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If GNT 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 GNT’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Gentor Resources’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.