Russel Metals Inc (TSE:RUS), a CA$1.71b small-cap, operates in the trading and distribution industry which is facing massive upheavals from industry convergence, and new forms of competition and business models. Capital goods analysts are forecasting for the entire industry, a strong double-digit growth of 15.5% in the upcoming year , and an enormous growth of 41.2% over the next couple of years. the growth rate of the Canadian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Russel Metals is lagging or leading in the industry.
What’s the catalyst for Russel Metals’s sector growth?
Distributors are increasingly focusing on improving efficiency and cost-cutting as new forces continue to disrupt traditional distribution models. Over the past year, the industry saw growth in the twenties, beating the Canadian market growth of 15.0%. Russel Metals leads the pack with its impressive earnings growth of 65.1% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 7.7% compared to the wider distribution sector growth hovering in the teens next year. As a future industry laggard in growth, Russel Metals may be a cheaper stock relative to its peers.
Is Russel Metals and the sector relatively cheap?
The distribution industry is trading at a PE ratio of 13.98x, in-line with the Canadian stock market PE of 15.5x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.4% on equities compared to the market’s 10.5%. On the stock-level, Russel Metals is trading at a PE ratio of 10.28x, which is relatively in-line with the average distribution stock. In terms of returns, Russel Metals generated 18.1% in the past year, which is 6.7% over the distribution sector.
If Russel Metals has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is distribution industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the capital goods sector. However, before you make a decision on the stock, I suggest you look at Russel Metals’s fundamentals in order to build a holistic investment thesis.
- 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.
- Historical Track Record: What has RUS’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.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Russel Metals? 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.