Pacifico Minerals Limited (ASX:PMY), a AUDA$4.48M 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, an extremely robust 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. Today, I will analyse the industry outlook, and also determine whether Pacifico Minerals is a laggard or leader relative to its basic materials sector peers. View our latest analysis for Pacifico Minerals
What’s the catalyst for Pacifico Minerals’s sector growth?
As a whole, the basic materials sector seems to be predominantly mature in terms of its industry life cycle. Companies appear to be vastly 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. In the past year, the industry delivered growth of 7.36%, beating the Australian market growth of 6.90%. Pacifico Minerals 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 Pacifico Minerals may be trading cheaper than its peers.
Is Pacifico Minerals and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 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 11.87%. Since Pacifico Minerals’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Pacifico Minerals’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Pacifico Minerals 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 Pacifico Minerals as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value Pacifico Minerals based on its cash flows to determine if it is overpriced based on its current growth outlook.