Lindian Resources Limited (ASX:LIN), a AUDA$6.43M 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. Basic material analysts are forecasting for the entire industry, an extremely elevated growth of 32.94% in the upcoming year , and a massive growth of 39.25% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Lindian Resources is a laggard or leader relative to its basic materials sector peers. See our latest analysis for Lindian Resources
What’s the catalyst for Lindian Resources’s sector growth?
Overall, the basic materials sector seems like it has reached maturity in its 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 of 7.36%, beating the Australian market growth of 6.88%. Lindian Resources 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 Lindian Resources may be trading cheaper than its peers.
Is Lindian Resources and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 15x, in-line with the Australian stock market PE of 18x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.35% on equities compared to the market’s 11.87%. Since Lindian Resources’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Lindian Resources’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Lindian Resources has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of Lindian Resources, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Lindian Resources fits into your wider portfolio and the opportunity cost of holding onto the stock.