Alderan Resources Limited (ASX:AL8), a AUDA$146.83M 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 highly optimistic growth of 32.94% in the upcoming year , and a massive 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, as well as evaluate whether Alderan Resources is lagging or leading in the industry. Check out our latest analysis for Alderan Resources
What’s the catalyst for Alderan Resources’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 common theme. However, the industry is still facing many emerging trends including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the past year, the industry delivered growth of 7.36%, beating the Australian market growth of 6.88%. Alderan 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 Alderan Resources may be trading cheaper than its peers.
Is Alderan Resources 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 11.89%. Since Alderan Resources’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Alderan 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? Alderan Resources has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of Alderan 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 Alderan Resources fits into your wider portfolio and the opportunity cost of holding onto the stock.