GBM Resources Limited (ASX:GBZ), a AUDA$7.77M 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 26.31% in the upcoming year , and an enormous growth of 38.51% 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? In this article, I’ll take you through the sector growth expectations, and also determine whether GBM Resources is a laggard or leader relative to its basic materials sector peers. Check out our latest analysis for GBM Resources
What’s the catalyst for GBM Resources’s sector growth?
Altogether 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. Over the past year, the industry saw growth of 7.36%, beating the Australian market growth of 6.88%. GBM Resources 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 GBM Resources may be trading cheaper than its peers.
Is GBM Resources and the sector relatively cheap?
The metals and mining industry is trading at a PE ratio of 15x, in-line with the Australian stock market PE of 18x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.35% on equities compared to the market’s 11.86%. Since GBM Resources’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge GBM Resources’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? GBM Resources has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of GBM Resources, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how GBM Resources fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If GBM Resources 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 GBM Resources’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into GBM 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.