RE: jan2 Jan 2018 13:52
As a whole, the basic materials sector seems to be predominantly mature in terms of its industry 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. Over the past year, the industry saw growth in the thirties, beating the UK market growth of 11.30%. Given the lack of analyst consensus in JAN’s outlook, we could potentially assume the stock’s growth rate broadly follows its metals and mining industry peers. This means it is an attractive growth stock relative to the wider UK stock market.
Metals and mining companies are typically trading at a PE of 14x, in-line with the UK stock market PE of 19x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 9.36% compared to the market’s 12.78%, potentially indicative of past headwinds. Since JAN’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge JAN’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Metals and mining stocks are currently expected to grow faster than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards high-growth. The industry is trading relatively in-line with the market, which means you may be paying a fair value for the materials stocks should you wish to accumulate more of your holdings.