Okapi Resources Limited (ASX:OKR), a AUDA$14.81M 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 strong double-digit growth of 26.85% in the upcoming year , and an enormous growth of 33.54% 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 OKR is lagging or leading in the industry. Check out our latest analysis for Okapi Resources
What’s the catalyst for OKR’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. 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 6.76%, though still underperforming the wider Australian stock market. Given the lack of analyst consensus in OKR’s outlook, we could potentially assume the stock’s growth rate broadly follows its metals and mining industry peers. This means it is an attractive growth stock relative to the wider Australian stock market.
Is OKR and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 14x, in-line with the Australian stock market PE of 18x. 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 10.72% on equities compared to the market’s 11.92%. Since OKR’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge OKR’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Metals and mining stocks are currently expected to grow faster than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards high-growth. The industry is trading relatively in-line with the market, which means you may be paying a fair value for the materials stocks should you wish to accumulate more of your holdings.
Are you a potential investor? If you’ve been keeping an eye on the metals and mining sector, now is the right time to dive deeper into the stock-level. The high growth prospect makes stocks such as OKR a more appealing investment case, though the industry is trading relatively in-line with the rest of the wider marker. I suggest you examine the stock’s fundamentals, such as its financial health, before you make an investment decision.