Should You Invest In The Basic Materials Sector And Duncan Park Holdings Corporation (TSXV:DPH)?
Duncan Park Holdings Corporation (TSXV:DPH), a CAD$1.26M 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. Moreover, the basic materials sector can be affected by shifts in the housing market, as many produced raw materials are components of construction projects. For example, if new housing development slows, the demand for metal products may also decrease. Basic material analysts are forecasting for the entire industry, a strong double-digit growth of 22 percent in the upcoming year, and an enormous growth of 32 percent over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Is the metals and mining industry an attractive sector-play right now? Today, I will analyse the industry outlook, as well as evaluate whether DPH is lagging or leading its competitors in the industry. View our latest analysis for Duncan Park Holdings
What’s the catalyst for DPH's sector growth?
As a whole, 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 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. In the past year, the industry delivered growth in the teens, beating the Australian market growth of 6 percent. DPH lags the pack with its negative growth rate of -412 percent over the past year, which indicates the company has been growing at a slower pace than its metals and mining peers. As the company trails the rest of the industry in terms of growth, DPH may also be a cheaper stock relative to its peers.
Is DPH and the sector relatively cheap?
The metals and mining sector's PE is currently hovering around 19 times, relatively similar to the rest of the Australian stock market PE of 22 times. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 12 percent compared to the market’s 16 percent, potentially indicative of past headwinds. Since DPH’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge DPH’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? DPH has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of DPH, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how DPH fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If DPH 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 DPH’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Duncan Park Holdings'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.
