Golden Deeps Limited (ASX:GED), a AUDA$5.28M 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 strong double-digit growth of 25.50% in the upcoming year , and an enormous growth of 33.03% 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, and also determine whether GED is a laggard or leader relative to its basic materials sector peers. View our latest analysis for Golden Deeps
What’s the catalyst for GED’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 natural trend. 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 6.76%, though still underperforming the wider Australian stock market. GED 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 GED may be trading cheaper than its peers.
Is GED 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 17x. 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 10.53% on equities compared to the market’s 11.92%. Since GED’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge GED’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? GED has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of GED, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how GED fits into your wider portfolio and the opportunity cost of holding onto the stock.