Range International Limited (ASX:RAN), a AUD$47.72M small-cap, is a chemicals company operating in an industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. Basic material analysts are forecasting for the entire industry, a relatively muted growth of 7.81% in the upcoming year, and an enormous growth of 34.52% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether RAN is lagging or leading in the industry. View our latest analysis for Range International
What’s the catalyst for RAN's sector growth?
Altogether the basic materials sector seems to be predominantly mature in terms of its industry life cycle. Companies appear to be highly 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. Over the past year, the industry saw negative growth of -12.52%, underperforming the Australian market growth of -4.59%. RAN lags the pack with its negative growth rate of -31.17% 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, RAN may also be a cheaper stock relative to its peers.
Is RAN and the sector relatively cheap?
Chemicals companies are typically trading at a PE of 21x, above the broader Australian stock market PE of 16x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 13.02% on equities compared to the market’s 11.92%. Since RAN’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge RAN’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? RAN has been a chemicals industry laggard in the past year. If your initial investment thesis is around the growth prospects of RAN, there are other chemicals companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how RAN fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If RAN has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its chemicals peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at RAN’s future cash flows in order to assess whether the stock is trading at a reasonable price.