Focus Minerals Limited (ASX:FML), a AUDA$71.27M small-cap, operates in the basic materials 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 positive double-digit growth of 25.15% in the upcoming year , and a massive 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. In this article, I’ll take you through the sector growth expectations, and also determine whether FML is a laggard or leader relative to its basic materials sector peers. View our latest analysis for Focus Minerals

What’s the catalyst for FML’s sector growth?

Altogether the basic materials sector seems like it has reached maturity in its life cycle. Companies appear to be highly 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. Over the past year, the industry saw growth of 6.76%, beating the Australian market growth of 5.37%. FML 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 FML may be trading cheaper than its peers.

Is FML and the sector relatively cheap?

The metals and mining industry is trading at a PE ratio of 14x, relatively similar to the rest of the Australian stock market PE of 17x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.83% on equities compared to the market’s 11.92%. Since FML’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge FML’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

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

Are you a potential investor? If FML 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 metals and mining 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 FML’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Focus Minerals’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other basic materials stocks instead? Use our free playform to see my list of over 2000 other basic materials companies trading on the market.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.