Ark Mines Limited (ASX:AHK), a AUDA$3.44M small-cap, operates in the basic materials industry which is sensitive to changes in the business cycle, as it supplies materials for construction activities. Basic material analysts are forecasting for the entire industry, an extremely robust growth of 32.94% in the upcoming year , and a massive growth of 39.25% 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 Ark Mines is lagging or leading in the industry. Check out our latest analysis for Ark Mines

What’s the catalyst for Ark Mines’s sector growth?

Altogether 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 natural trend. 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. Over the past year, the industry saw growth of 7.36%, beating the Australian market growth of 6.90%. Ark Mines 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 Ark Mines may be trading cheaper than its peers.

Is Ark Mines and the sector relatively cheap?

The metals and mining sector’s PE is currently hovering around 15x, relatively similar to the rest of 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 11.87%. Since Ark Mines’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Ark Mines’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? Ark Mines has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of Ark Mines, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Ark Mines fits into your wider portfolio and the opportunity cost of holding onto the stock.