American CuMo Mining Corporation (TSXV:MLY), a CADCA$9.86M 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 25.66% in the upcoming year , and a massive growth of 64.14% over the next couple of years. This rate is larger than the growth rate of the Canadian stock market as a whole. Should your portfolio be overweight in the metals and mining sector at the moment? Today, I will analyse the industry outlook, and also determine whether MLY is a laggard or leader relative to its basic materials sector peers.See our latest analysis for MLY
What’s the catalyst for MLY’s sector growth?
TSXV:MLY Past Future Earnings Nov 17th 17 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. 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 previous year, the industry saw growth of over 50%, beating the Canadian market growth of 8.26%. MLY 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 MLY may be trading cheaper than its peers.
Is MLY and the sector relatively cheap?
TSXV:MLY PE PEG Gauge Nov 17th 17 The metals and mining sector’s PE is currently hovering around 11x, below the broader Canadian stock market PE of 17x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 8.60% on equities compared to the market’s 9.62%. Since MLY’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MLY’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? MLY has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of MLY, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how MLY fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If MLY 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 MLY’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into American CuMo Mining’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.