Copper Strike Limited (ASX:CSE), a AU$25.11M 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 23.19% in the upcoming year , and an enormous growth of 39.81% 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 Copper Strike is lagging or leading its competitors in the industry. See our latest analysis for Copper Strike
What’s the catalyst for Copper Strike’s sector growth?
Altogether 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 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. In the past year, the industry delivered growth of 8.07%, beating the Australian market growth of 7.09%. Copper Strike 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 Copper Strike may be trading cheaper than its peers.
Is Copper Strike and the sector relatively cheap?
The metals and mining industry is trading at a PE ratio of 13.8x, in-line with the Australian stock market PE of 17.2x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 9.79% on equities compared to the market’s 11.30%. Since Copper Strike’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Copper Strike’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Copper Strike has been a metals and mining industry laggard in the past year. If Copper Strike 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 Copper Strike’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 CSE’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 Copper Strike? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!