Northern Dynasty Minerals Ltd (AMEX:NAK), a US$324.80M 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. 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 strong double-digit growth of 11.24% in the upcoming year , and a single-digit 9.54% growth over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Is the metals and mining industry an attractive sector-play right now? Below, I will examine the sector growth prospects, and also determine whether Northern Dynasty Minerals is a laggard or leader relative to its basic materials sector peers. See our latest analysis for Northern Dynasty Minerals
What’s the catalyst for Northern Dynasty Minerals’s sector growth?
As a whole, 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. In the previous year, the industry saw growth of over 50%, beating the US market growth of 9.88%. Northern Dynasty Minerals 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 Northern Dynasty Minerals may be trading cheaper than its peers.
Is Northern Dynasty Minerals and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 13.25x, lower than the rest of the US stock market PE of 18.99x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 8.94% on equities compared to the market’s 10.34%. Since Northern Dynasty Minerals’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Northern Dynasty Minerals’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Northern Dynasty Minerals has been a metals and mining industry laggard in the past year. If Northern Dynasty Minerals 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 Northern Dynasty Minerals’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 NAK’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 Northern Dynasty Minerals? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!