Southern Gold Limited (ASX:SAU), a AUDA$13.02M 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 31.07% in the upcoming year , and a whopping growth of 40.18% 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 Southern Gold is lagging or leading in the industry. View our latest analysis for Southern Gold

What’s the catalyst for Southern Gold’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 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 of 7.36%, beating the Australian market growth of 6.89%. Given the lack of analyst consensus in Southern Gold’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 Australian stock market.

Is Southern Gold and the sector relatively cheap?

Metals and mining companies are typically trading at a PE of 16x, in-line with the Australian stock market PE of 18x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.35% on equities compared to the market’s 11.86%. On the stock-level, Southern Gold is trading at a lower PE ratio of 5x, making it cheaper than the average metals and mining stock. In terms of returns, Southern Gold generated 20.54% in the past year, which is 10.19% over the metals and mining sector.

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.

Are you a potential investor? If you’ve been keeping an eye on the metals and mining sector, now is the right time to dive deeper into the stock-level. The high growth prospect makes stocks such as Southern Gold a more appealing investment case, though the industry is trading relatively in-line with the rest of the wider marker. I suggest you examine the stock’s fundamentals, such as its financial health, before you make an investment decision.

For a deeper dive into Southern Gold’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.