Hawkstone Mining Limited (ASX:HWK), a AUDA$9.94M 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. Basic material analysts are forecasting for the entire industry, a positive double-digit growth of 25.15% in the upcoming year , and an enormous growth of 41.20% 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 HWK is lagging or leading in the industry. View our latest analysis for Hawkstone Mining
What’s the catalyst for HWK’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 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 of 6.76%, beating the Australian market growth of 5.37%. HWK 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 HWK may be trading cheaper than its peers.
Is HWK and the sector relatively cheap?
Metals and mining companies are typically trading at a PE of 14x, in-line with the Australian stock market PE of 17x. 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 11.83% on equities compared to the market’s 11.92%. Since HWK’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge HWK’s value is to assume the stock should be relatively in-line with its industry. In terms of returns, HWK generated 166.53% in the past year, which is 154.70% over the metals and mining sector.
What this means for you:
Are you a shareholder? HWK recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto HWK as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value HWK based on its cash flows to determine if it is overpriced based on its current growth outlook.