Is Katoro Gold PLC (LON:KAT) A Good Basic Materials Bet?

Katoro Gold PLC (AIM:KAT), a UK£2.40M 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 19.42% in the upcoming year , and a whopping growth of 35.12% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK stock market as a whole. Should your portfolio be overweight in the metals and mining sector at the moment? Today, I will analyse the industry outlook, and also determine whether Katoro Gold is a laggard or leader relative to its basic materials sector peers. See our latest analysis for Katoro Gold

What’s the catalyst for Katoro Gold’s sector growth?

Altogether 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. 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 UK market growth of 12.33%. Given the lack of analyst consensus in Katoro Gold’s outlook, we could potentially assume the stock’s growth rate broadly follows its metals and mining industry peers. This means it is an attractive growth stock relative to the wider UK stock market.

Is Katoro Gold and the sector relatively cheap?

The metals and mining sector’s PE is currently hovering around 13.98x, relatively similar to the rest of the UK stock market PE of 17.64x. 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 11.26% on equities compared to the market’s 12.79%. Since Katoro Gold’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Katoro Gold’s value is to assume the stock should be relatively in-line with its industry. In terms of returns, Katoro Gold generated 10.51% in the past year, in-line with its industry average.

Next Steps:

If you’ve been keeping an eye on the materials sector, now is the right time to dive deeper into the stock-level. The high growth prospect makes stocks such as Katoro Gold a more appealing investment case, though the industry is trading relatively in-line with the rest of the wider market. However, before you make a decision on the stock, I suggest you look at Katoro 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 KAT’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 Katoro 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!