Viking Mines Limited (ASX:VKA), a AUDA$12.55M small-cap, operates in the basic materials 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, an extremely robust growth of 33.96% in the upcoming year , and an enormous growth of 38.88% 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 Viking Mines is lagging or leading in the industry. View our latest analysis for Viking Mines

What’s the catalyst for Viking Mines’s sector growth?

Overall, 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. 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 7.36%, beating the Australian market growth of 6.90%. Viking Mines 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 Viking Mines may be trading cheaper than its peers.

Is Viking Mines and the sector relatively cheap?

The metals and mining sector’s PE is currently hovering around 16x, in-line with the Australian stock market PE of 18x. 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 10.35% on equities compared to the market’s 11.86%. Since Viking Mines’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Viking Mines’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

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