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Northern Star Resources Limited (ASX:NST) And The Basic Materials Industry Prospect For 2018

Northern Star Resources Limited (ASX:NST), a AUDA$3.73B mid-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 massive 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. Below, I will examine the sector growth prospects, as well as evaluate whether Northern Star Resources is lagging or leading in the industry. Check out our latest analysis for Northern Star Resources

What’s the catalyst for Northern Star Resources’s sector growth?

ASX:NST Past Future Earnings Jan 17th 18
ASX:NST Past Future Earnings Jan 17th 18

Altogether 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 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 previous year, the industry saw growth of 7.36%, beating the Australian market growth of 6.93%. Northern Star Resources leads the pack with its impressive earnings growth of 14.09% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 13.79% compared to the wider metals and mining sector growth hovering in the twenties next year.

Is Northern Star Resources and the sector relatively cheap?

ASX:NST PE PEG Gauge Jan 17th 18
ASX:NST PE PEG Gauge Jan 17th 18

The metals and mining sector’s PE is currently hovering around 16x, in-line with the Australian stock market PE of 18x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.35% on equities compared to the market’s 11.86%. On the stock-level, Northern Star Resources is trading at a PE ratio of 20x, which is relatively in-line with the average metals and mining stock. In terms of returns, Northern Star Resources generated 35.41% in the past year, which is 25.06% over the metals and mining sector.

What this means for you:

Are you a shareholder? Northern Star Resources is a metals and mining industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If your initial investment thesis is around the growth prospects of Northern Star Resources, there are other metals and mining companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how Northern Star Resources fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If Northern Star Resources has been on your watchlist for a while, now may not be the best time to enter into the stock. Its growth is expected to be lower than its metals and mining peers in the near term, and it is also trading at a PE in-line with these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the materials sector.

For a deeper dive into Northern Star Resources’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.

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