Capital Mining Limited (ASX:CMY): Is Now The Time To Bet On Basic Materials?
Capital Mining Limited (ASX:CMY), a AUDA$4.05M small-cap, is a metals and mining operating in an 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 positive double-digit growth of 25.15% in the upcoming year , and a massive growth of 41.20% 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 CMY is lagging or leading in the industry. See our latest analysis for CMY
What’s the catalyst for CMY’s sector growth?
Altogether the basic materials sector seems like it has reached maturity in its life cycle. Companies appear to be highly competitive and consolidation seems to be a natural trend. There are plenty of emerging trends to deal with across the board 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%, beating the Australian market growth of 5.37%. CMY 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 CMY may be trading cheaper than its peers.
Is CMY and the sector relatively cheap?
Metals and mining companies are typically trading at a PE of 14x, in-line with the Australian stock market PE of 17x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.83% on equities compared to the market’s 11.92%. Since CMY’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CMY’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? CMY 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 CMY as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value CMY based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If CMY has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the metals and mining industry. Before you make a decision on the stock, take a look at CMY’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Capital Mining’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.
