Independence Gold Corp (TSXV:IGO), a CA$6.45M small-cap, operates in the basic materials industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building 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 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. Should your portfolio be overweight in the metals and mining sector at the moment? Below, I will examine the sector growth prospects, and also determine whether Independence Gold is a laggard or leader relative to its basic materials sector peers. View our latest analysis for Independence Gold
What’s the catalyst for Independence Gold’s sector growth?
Overall, 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 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 previous year, the industry saw growth in the forties, beating the Canadian market growth of 11.10%. Independence Gold 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 Independence Gold may be trading cheaper than its peers.
Is Independence Gold and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 12.2x, lower than the rest of the Canadian stock market PE of 17.6x. 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 7.39% on equities compared to the market’s 9.18%. Since Independence Gold’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Independence Gold’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Independence Gold has been a metals and mining industry laggard in the past year. If Independence Gold 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 Independence Gold’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 IGO’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 Independence Gold? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!