Keras Resources Plc (AIM:KRS): Is Basic Materials An Attractive Sector Play?
Keras Resources Plc (AIM:KRS), a GBP£9.61M 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 23.50% in the upcoming year , and a massive growth of 39.19% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether KRS is lagging or leading in the industry. Check out our latest analysis for Keras Resources
What’s the catalyst for KRS’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 vastly 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 thirties, beating the UK market growth of 11.30%. KRS 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 KRS may be trading cheaper than its peers.
Is KRS and the sector relatively cheap?
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 KRS’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge KRS’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? KRS 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 KRS as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value KRS based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If KRS 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. Before you make a decision on the stock, take a look at KRS’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Keras 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.
