Resource Base Limited (ASX:RBX), a AUDA$989.69K small-cap, operates in the basic materials 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 positive double-digit growth of 26.90% in the upcoming year , and an enormous growth of 36.44% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether RBX is lagging or leading in the industry. Check out our latest analysis for Resource Base
What’s the catalyst for RBX’s sector growth?
Altogether 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 natural trend. 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 of 6.76%, though still underperforming the wider Australian stock market. RBX 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 RBX may be trading cheaper than its peers.
Is RBX and the sector relatively cheap?
Metals and mining companies are typically trading at a PE of 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 10.53% on equities compared to the market’s 11.92%. Since RBX’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge RBX’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? RBX 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 RBX as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value RBX based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If RBX has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the metals and mining industry. Before you make a decision on the stock, take a look at RBX’s cash flows and assess whether the stock is trading at a fair price.