LiCo Energy Metals Inc (TSXV:LIC), a CADCA$12.58M 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 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. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether LIC is lagging or leading in the industry. See our latest analysis for LIC
What’s the catalyst for LIC’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 over 50%, beating the Canadian market growth of 8.26%. LIC 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 LIC may be trading cheaper than its peers.
Is LIC 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 illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 8.60% on equities compared to the market’s 9.62%. Since LIC’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge LIC’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? LIC has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of LIC, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how LIC fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If LIC 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 LIC’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into LiCo Energy Metals’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.