WPG Resources Ltd (ASX:WPG), a AUD$34.43M 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. Moreover, 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 positive 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. An interesting question to explore is whether we can we benefit from entering into the metals and mining sector right now. Below, I will examine the sector growth prospects, and also determine whether WPG is a laggard or leader relative to its basic materials sector peers. View our latest analysis for WPG Resources

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

As a whole, 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 common theme. 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. WPG lags the pack with its negative growth rate of -8984 percent over the past year, which indicates the company has been growing at a slower pace than its metals and mining peers. As the company trails the rest of the industry in terms of growth, WPG may also be a cheaper stock relative to its peers.

Is WPG and the sector relatively cheap?

Metals and mining companies are typically trading at a PE of 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 WPG’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge WPG’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

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

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

For a deeper dive into WPG Resources'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.