How Does Eco Oro Minerals Corp (TSX:EOM)’s Prospect Stack Up Next To Its Basic Material Peers?
Eco Oro Minerals Corp (TSX:EOM), a CADCA$26.35M 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 a massive 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. Today, I will analyse the industry outlook, and also determine whether EOM is a laggard or leader relative to its basic materials sector peers. See our latest analysis for EOM
What’s the catalyst for EOM’s sector growth?
Overall, 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 common theme. 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. Over the past year, the industry saw growth of over 50%, beating the Canadian market growth of 8.26%. EOM 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 EOM may be trading cheaper than its peers.
Is EOM and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 11x, below the broader 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 EOM’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge EOM’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? EOM has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of EOM, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how EOM fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If EOM has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to 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 EOM’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Eco Oro Minerals’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.
