What’s Ahead For Continental Gold Inc (TSX:CNL)?
Continental Gold Inc (TSX:CNL), a CADCA$579.71M 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 25.66% in the upcoming year , and an enormous growth of 64.14% over the next couple of years. This rate is larger than the growth rate of the Canadian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether CNL is lagging or leading in the industry. View our latest analysis for Continental Gold
What’s the catalyst for CNL’s sector growth?
As a whole, the basic materials sector seems like it has reached maturity in its 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 over 50%, beating the Canadian market growth of 8.26%. CNL lags the pack with its lower growth rate of 29.59% over the past year, which indicates the company will be growing at a slower pace than its metals and mining peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with CNL poised to deliver a 6.31% growth compared to the industry average growth rate of 25.66%.
Is CNL and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 11x, lower than the rest of the Canadian stock market PE of 17x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 8.60% on equities compared to the market’s 9.62%. Since CNL’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CNL’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? CNL is a metals and mining industry laggard in terms of its future growth outlook. If your initial investment thesis is around the growth prospects of CNL, there are other metals and mining companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how CNL fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If CNL has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth is expected to be lower than its metals and mining peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at CNL’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Continental Gold’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other basic materials stocks instead? Use our free playform to see my list of over 2000 other basic materials companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
