Nevada Sunrise Gold Corporation (TSXV:NEV) And The Basic Materials Industry Prospect For 2017
Nevada Sunrise Gold Corporation (TSXV:NEV), a CAD$6.96M small-cap, operates in the basic materials 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 highly optimistic growth of 37 percent in the upcoming year, and a whopping growth of 95 percent over the next couple of years. However this rate still came in below the growth rate of the Canadian stock market as a whole. Is now the right time to pick up some shares in metals and mining companies? Below, I will examine the sector growth prospects, as well as evaluate whether NEV is lagging or leading its competitors in the industry. View our latest analysis for Nevada Sunrise Gold
What’s the catalyst for NEV's sector growth?
As a whole, 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. In the past year, the industry delivered growth in the twenties, beating the Canadian market growth of 14 percent. NEV leads the pack with its impressive earnings growth of 32 percent over the past year. This proven growth may make NEV a more expensive stock relative to its peers.
Is NEV and the sector relatively cheap?
The metals and mining sector's PE is currently hovering around 37 times, above the broader Canadian stock market PE of 21 times. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 9 percent compared to the market’s 12 percent, which may be indicative of past headwinds. Since NEV’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge NEV’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? NEV 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 NEV as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value NEV based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If NEV 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. However, before you make a decision on the stock, I suggest you look at NEV’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into Nevada Sunrise Gold'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.
