Have Investors Already Priced In Basic Materials Growth For Horseshoe Metals Limited (ASX:HOR)?
Horseshoe Metals Limited (ASX:HOR), a AUDA$3.89M 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 positive double-digit growth of 25.43% in the upcoming year , and a whopping growth of 40.71% 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, and also determine whether Horseshoe Metals is a laggard or leader relative to its basic materials sector peers. View our latest analysis for Horseshoe Metals
What’s the catalyst for Horseshoe Metals’s sector growth?
Overall, the basic materials sector seems to be predominantly mature in terms of its industry life cycle. Companies appear to be highly competitive and consolidation seems to be a inevitable. 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 previous year, the industry saw growth of 7.36%, beating the Australian market growth of 6.93%. Horseshoe Metals 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 Horseshoe Metals may be trading cheaper than its peers.
Is Horseshoe Metals and the sector relatively cheap?
The metals and mining industry is trading at a PE ratio of 16x, relatively similar to the rest of the Australian stock market PE of 18x. 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 10.35% on equities compared to the market’s 11.86%. Since Horseshoe Metals’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Horseshoe Metals’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Horseshoe Metals 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 Horseshoe Metals as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value Horseshoe Metals based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Horseshoe Metals 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 Horseshoe Metals’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Horseshoe 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.
