Goldquest Mining Corp (TSXV:GQC), a CADCA$92.73M 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 11.63% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Canadian stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the metals and mining sector right now. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether Goldquest Mining is lagging or leading its competitors in the industry. Check out our latest analysis for Goldquest Mining
What’s the catalyst for Goldquest Mining’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 inevitable. There are plenty of emerging trends to deal with across the board including the reduction of waste, raw material inflation, and innovation in global supply chain management. Over the past year, the industry saw growth in the forties, beating the Canadian market growth of 11.47%. Goldquest Mining 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 Goldquest Mining may be trading cheaper than its peers.
Is Goldquest Mining and the sector relatively cheap?
The metals and mining industry is trading at a PE ratio of 12x, below the broader Canadian stock market PE of 17x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 7.18% on equities compared to the market’s 9.17%. Since Goldquest Mining’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Goldquest Mining’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Goldquest Mining has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of Goldquest Mining, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Goldquest Mining fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Goldquest Mining 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 Goldquest Mining’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Goldquest Mining’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.