Steed Oriental (Holdings) Company Limited (SEHK:8277), a HK$179.36M small-cap, is a basic materials company operating in an 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 strong double-digit growth of 14.13% in the upcoming year . In this article, I’ll take you through the sector growth expectations, and also determine whether Steed Oriental (Holdings) is a laggard or leader relative to its basic materials sector peers. See our latest analysis for Steed Oriental (Holdings)
What’s the catalyst for Steed Oriental (Holdings)’s sector growth?
As a whole, the basic materials sector seems to be predominantly mature in terms of its industry life cycle. Companies appear to be vastly competitive and consolidation seems to be a inevitable. 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 in the teens, beating the Hong Kong market growth of 11.29%. Steed Oriental (Holdings) 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 Steed Oriental (Holdings) may be trading cheaper than its peers.
Is Steed Oriental (Holdings) and the sector relatively cheap?
The forest products industry is trading at a PE ratio of 11.5x, in-line with the Hong Kong stock market PE of 14.6x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 13.01% compared to the market’s 10.12%, potentially illustrative of past tailwinds. Since Steed Oriental (Holdings)’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Steed Oriental (Holdings)’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Steed Oriental (Holdings) recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the materials industry. However, before you make a decision on the stock, I suggest you look at Steed Oriental (Holdings)’s fundamentals in order to build a holistic investment thesis.