Bathurst Resources Limited (ASX:BRL), a AUDA$204.28M 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. Basic material analysts are forecasting for the entire industry, a positive double-digit growth of 29.79% in the upcoming year , and an enormous growth of 36.64% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether Bathurst Resources is lagging or leading in the industry. Check out our latest analysis for Bathurst Resources
What’s the catalyst for Bathurst Resources’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 vastly competitive and consolidation seems to be a common theme. There are plenty of emerging trends to deal with across the board including the reduction of waste, raw material inflation, and innovation in global supply chain management. Over the past year, the industry saw growth of 6.76%, though still underperforming the wider Australian stock market. Bathurst 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 Bathurst Resources may be trading cheaper than its peers.
Is Bathurst Resources and the sector relatively cheap?
The metals and mining industry is trading at a PE ratio of 14x, 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 10.53% on equities compared to the market’s 11.89%. Since Bathurst Resources’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Bathurst 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? Bathurst Resources has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of Bathurst 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 Bathurst Resources fits into your wider portfolio and the opportunity cost of holding onto the stock.