Yahoo Finance Nufarm Limited (ASX:NUF) And The Basic Materials Industry Prospect For 2018
Nufarm Limited (ASX:NUF), a AU$2.24b small-cap, is a chemicals company operating in an 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 18.1% in the upcoming year , and a massive growth of 46.0% 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, and also determine whether Nufarm is a laggard or leader relative to its basic materials sector peers.
View our latest analysis for Nufarm
What’s the catalyst for Nufarm’s sector growth?
The sector seems like it has reached maturity in its life cycle, with vastly competitive companies and inevitable consolidation. In the past year, the industry delivered negative growth of -8.8%, underperforming the Australian market growth of 11.2%. Nufarm lags the pack with its negative growth rate of -24.8% over the past year, which indicates the company has been growing at a slower pace than its chemicals peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 38.9% in the upcoming year. This future growth may make Nufarm a more expensive stock relative to its peers.
Is Nufarm and the sector relatively cheap?
The chemicals industry is trading at a PE ratio of 25.43x, above the broader Australian stock market PE of 17.27x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 11.0% on equities compared to the market’s 11.8%. On the stock-level, Nufarm is trading at a lower PE ratio of 20.28x, making it cheaper than the average chemicals stock. In terms of returns, Nufarm generated 5.3% in the past year, which is 5.7% below the chemicals sector.
Next Steps:
Nufarm’s future growth prospect aligns with that of the broader market and its PE is below its materials peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market hasn’t fully accounted for the growth, meaning now may be the right time to accumulate more of, or to enter into, the stock. However, before you make a decision on the stock, I suggest you look at Nufarm’s fundamentals in order to build a holistic investment thesis.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Historical Track Record: What has NUF’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Nufarm? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
