In This Article:
Black Mountain Resources Limited (ASX:BMZ), a AU$3.26M 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, a fairly unexciting growth rate of 3.77% in the upcoming year , and a strong near-term growth of 15.82% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Black Mountain Resources is lagging or leading in the industry. See our latest analysis for Black Mountain Resources
What’s the catalyst for Black Mountain Resources’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. 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 in the teens, beating the Australian market growth of 6.91%. Black Mountain Resources 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 Black Mountain Resources may be trading cheaper than its peers.
Is Black Mountain Resources and the sector relatively cheap?
Metals and mining companies are typically trading at a PE of 12.81x, in-line with the Australian stock market PE of 17.24x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.85% on equities compared to the market’s 11.37%. Since Black Mountain Resources’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Black Mountain Resources’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Black Mountain Resources has been a metals and mining industry laggard in the past year. If Black Mountain Resources has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its materials peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Black Mountain Resources’s fundamentals in order to build a holistic investment thesis.