thyssenkrupp AG (XTRA:TKA), a €14.23B large-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 positive double-digit growth of 13.69% in the upcoming year , and a robust short-term growth of 27.58% over the next couple of years. However, this rate came in below the growth rate of the DE 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, and also determine whether thyssenkrupp is a laggard or leader relative to its basic materials sector peers. View our latest analysis for thyssenkrupp
What’s the catalyst for thyssenkrupp’s sector growth?
Altogether 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 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. Over the past year, the industry saw growth in the thirties, beating the DE market growth of 14.34%. thyssenkrupp leads the pack with its impressive earnings growth of over 100% last year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with thyssenkrupp poised to deliver a 96.37% growth over the next couple of years compared to the industry’s 13.69%. This growth may make thyssenkrupp a more expensive stock relative to its peers.
Is thyssenkrupp and the sector relatively cheap?
metals and mining companies are typically trading at a PE of 12.35x, lower than the rest of the DE stock market PE of 18.23x. 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 10.75% on equities compared to the market’s 11.42%. On the stock-level, thyssenkrupp is trading at a higher PE ratio of 27.33x, making it more expensive than the average metals and mining stock. In terms of returns, thyssenkrupp generated 16.68% in the past year, which is 5.92% over the metals and mining sector.
Next Steps:thyssenkrupp’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If thyssenkrupp has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other metals and mining companies. However, before you make a decision on the stock, I suggest you look at thyssenkrupp’s fundamentals in order to build a holistic investment thesis.
- 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.
- Historical Track Record: What has TKA’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.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of thyssenkrupp? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!