Alicanto Minerals Limited (ASX:AQI), a AUD$17.39M small-cap, operates in the basic materials industry which is sensitive to changes in the business cycle, as it supplies materials for construction activities. Furthermore, the basic materials sector can be affected by shifts in the housing market, as many produced raw materials are components of construction projects. For example, if new housing development slows, the demand for metal products may also decrease. Basic material analysts are forecasting for the entire industry, a strong double-digit growth of 22 percent in the upcoming year, and an enormous growth of 32 percent over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Should your portfolio be overweight in the metals and mining sector at the moment? In this article, I’ll take you through the sector growth expectations, and also determine whether AQI is a laggard or leader relative to its basic materials sector peers. See our latest analysis for AQI

What’s the catalyst for AQI's sector growth?

Overall, the basic materials sector seems like it has reached maturity in its life cycle. Companies appear to be vastly 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. In the previous year, the industry saw growth in the teens, beating the Australian market growth of 6 percent. AQI leads the pack with its impressive earnings growth of 37 percent over the past year. This proven growth may make AQI a more expensive stock relative to its peers.

Is AQI and the sector relatively cheap?

The metals and mining sector's PE is currently hovering around 19 times, in-line with the Australian stock market PE of 22 times. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 12 percent compared to the market’s 16 percent, potentially indicative of past headwinds. Since AQI’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge AQI’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? AQI 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 AQI as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value AQI based on its cash flows to determine if it is overpriced based on its current growth outlook.

Are you a potential investor? If AQI has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the metals and mining industry. However, before you make a decision on the stock, I suggest you look at AQI’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.

For a deeper dive into Alicanto 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.