Ark Mines Limited (ASX:AHK), a AU$3.68M 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 strong double-digit growth of 21.32% in the upcoming year , and a massive growth of 38.52% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Is now the right time to pick up some shares in metals and mining companies? Below, I will examine the sector growth prospects, as well as evaluate whether Ark Mines is lagging or leading its competitors in the industry. Check out our latest analysis for Ark Mines
What’s the catalyst for Ark Mines’s sector growth?
Overall, the basic materials sector seems to be predominantly mature in terms of its industry life cycle. Companies appear to be highly 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 8.07%, beating the Australian market growth of 6.91%. Ark Mines 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 Ark Mines may be trading cheaper than its peers.
Is Ark Mines and the sector relatively cheap?
Metals and mining companies are typically trading at a PE of 13.13x, in-line with the Australian stock market PE of 17.18x. 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 10.56% on equities compared to the market’s 11.35%. Since Ark Mines’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Ark Mines’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Ark Mines has been a metals and mining industry laggard in the past year. If Ark Mines has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its materials peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Ark Mines’s fundamentals in order to build a holistic investment thesis.
- 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- 2. Historical Track Record: What has AHK’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Ark Mines? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!