Ariana Resources plc (LON:AAU): Is Now The Time To Bet On Basic Materials?
Ariana Resources plc (AIM:AAU), a UK£14.84M small-cap, operates in the basic materials industry which is sensitive to changes in the business cycle, as it supplies materials for construction activities. Basic material analysts are forecasting for the entire industry, a strong double-digit growth of 20.99% in the upcoming year , and a strong near-term growth of 28.00% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Ariana Resources is a laggard or leader relative to its basic materials sector peers. Check out our latest analysis for Ariana Resources
What’s the catalyst for Ariana Resources’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 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 previous year, the industry saw growth in the thirties, beating the UK market growth of 11.95%. Ariana Resources lags the pack with its which indicates the company will be growing at a slower pace than its metals and mining peers.
Is Ariana Resources and the sector relatively cheap?
The metals and mining industry is trading at a PE ratio of 11.79x, lower than the rest of the UK stock market PE of 17.76x. 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 11.12% on equities compared to the market’s 11.98%. On the stock-level, Ariana Resources is trading at a lower PE ratio of 0.94x, making it cheaper than the average metals and mining stock. In terms of returns, Ariana Resources generated 56.27% in the past year, which is 45.15% over the metals and mining sector.
Next Steps:
Ariana Resources is a metals and mining industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Ariana Resources is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Ariana Resources’s fundamentals in order to build a holistic investment thesis.
1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Historical Track Record: What has AAU’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Ariana Resources? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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.
