Metalyst Forgings Limited (NSEI:METALFORGE), a INR₹1.43B 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 strong double-digit growth of 16.97% in the upcoming year . Today, I will analyse the industry outlook, as well as evaluate whether Metalyst Forgings is lagging or leading in the industry. Check out our latest analysis for Metalyst Forgings
What’s the catalyst for Metalyst Forgings’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 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. In the previous year, the industry saw growth in the twenties, beating the Indian market growth of 12.80%. Metalyst Forgings 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 Metalyst Forgings may be trading cheaper than its peers.
Is Metalyst Forgings and the sector relatively cheap?
Metals and mining companies are typically trading at a PE of 23x, relatively similar to the rest of the Indian stock market PE of 27x. 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 8.11% on equities compared to the market’s 9.83%. Since Metalyst Forgings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Metalyst Forgings’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Metalyst Forgings recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Metalyst Forgings as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value Metalyst Forgings based on its cash flows to determine if it is overpriced based on its current growth outlook.