Should You Invest In The Basic Materials Sector And Astron Corporation Limited (ASX:ATR)?
Astron Corporation Limited (ASX:ATR), a AUDA$23.27M 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 25.15% in the upcoming year , and a whopping 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. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether ATR is lagging or leading in the industry. See our latest analysis for ATR
What’s the catalyst for ATR’s sector growth?
Altogether 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 past year, the industry delivered growth of 6.76%, beating the Australian market growth of 5.37%. ATR 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 ATR may be trading cheaper than its peers.
Is ATR and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 14x, relatively similar to the rest of the Australian stock market PE of 17x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 11.83% on equities compared to the market’s 11.92%. Since ATR’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge ATR’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? ATR 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 ATR as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value ATR based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If ATR 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 ATR’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Astron’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.
