ArcPacific Resources Corp (TSXV:ACP), a CA$417.76K 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. 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 somewhat weaker growth of 4.97% in the upcoming year , and a single-digit 0.0073% growth over the next couple of years. This rate is larger than the growth rate of the Canadian stock market as a whole. Is the metals and mining industry an attractive sector-play right now? In this article, I’ll take you through the sector growth expectations, and also determine whether ArcPacific Resources is a laggard or leader relative to its basic materials sector peers. See our latest analysis for ArcPacific Resources
What’s the catalyst for ArcPacific Resources's sector growth?
Overall, the basic materials sector seems like it has reached maturity in its 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 past year, the industry delivered growth in the forties, beating the Canadian market growth of 11.48%. ArcPacific 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 ArcPacific Resources may be trading cheaper than its peers.
Is ArcPacific Resources and the sector relatively cheap?
The metals and mining sector's PE is currently hovering around 12.15x, relatively similar to the rest of the Canadian stock market PE of 16.46x. 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 7.39% on equities compared to the market’s 9.08%. Since ArcPacific Resources’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge ArcPacific Resources’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:ArcPacific Resources has been a metals and mining industry laggard in the past year. If ArcPacific Resources 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 ArcPacific Resources'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 ACP'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 ArcPacific Resources? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.