Copper Strike Limited (ASX:CSE), a AUDA$32.05M small-cap, is a metals and mining operating in an industry which can be affected by shifts in the housing market, as many produced raw materials are components of construction projects. Basic material analysts are forecasting for the entire industry, a highly optimistic growth of 32.94% in the upcoming year , and a whopping 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 Copper Strike is a laggard or leader relative to its basic materials sector peers. View our latest analysis for Copper Strike
What’s the catalyst for Copper Strike’s sector growth?
Overall, 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 of 7.36%, beating the Australian market growth of 6.88%. Copper Strike 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 Copper Strike may be trading cheaper than its peers.
Is Copper Strike and the sector relatively cheap?
Metals and mining companies are typically trading at a PE of 15x, relatively similar to the rest of 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 11.91%. Since Copper Strike’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Copper Strike’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Copper Strike has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of Copper Strike, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Copper Strike fits into your wider portfolio and the opportunity cost of holding onto the stock.