In This Article:
Carbonxt Group Limited (ASX:CG1), a AU$42.69M small-cap, is a chemicals company operating in an industry which faces the challenge or economic cyclicality as well as a structural shift towards higher environmental concerns. Basic material analysts are forecasting for the entire industry, a relatively muted growth of 5.30% in the upcoming year , and an optimistic near-term growth of 28.41% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. In this article, I’ll take you through the sector growth expectations, and also determine whether Carbonxt Group is a laggard or leader relative to its basic materials sector peers. Check out our latest analysis for Carbonxt Group
What’s the catalyst for Carbonxt Group’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 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 past year, the industry delivered growth of over 50%, beating the Australian market growth of 7.09%. Carbonxt Group lags the pack with its lower growth rate of 17.26% over the past year, which indicates the company will be growing at a slower pace than its chemicals peers. As the company trails the rest of the industry in terms of growth, Carbonxt Group may also be a cheaper stock relative to its peers.
Is Carbonxt Group and the sector relatively cheap?
The chemicals industry is trading at a PE ratio of 20.12x, relatively similar to the rest of the Australian stock market PE of 16.96x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 11.77% on equities compared to the market’s 11.83%. Since Carbonxt Group’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Carbonxt Group’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Carbonxt Group has been a chemicals industry laggard in the past year. If Carbonxt Group 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 Carbonxt Group’s fundamentals in order to build a holistic investment thesis.