Abterra Ltd (SGX:L5I), a S$20.21M small-cap, is a trading and distribution company operating in an industry which is facing massive upheavals from industry convergence, and new forms of competition and business models. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 11.50% in the upcoming year . Below, I will examine the sector growth prospects, as well as evaluate whether Abterra is lagging or leading in the industry. See our latest analysis for Abterra
What’s the catalyst for Abterra’s sector growth?
Distributors are increasingly focusing on improving efficiency and cost-cutting as new forces continue to disrupt traditional distribution models. Technological advances have brought about new competitors, such as Amazon, and while some distributors feel that e-tailers can’t match their personal approach, many customers may feel differently as buying online becomes cheaper and more efficient. Over the past year, the industry saw negative growth of -8.07%, underperforming the Singapore market growth of 11.99%. Abterra 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 Abterra may be trading cheaper than its peers.
Is Abterra and the sector relatively cheap?
The distribution industry is trading at a PE ratio of 14.6x, relatively similar to the rest of the Singapore stock market PE of 13.95x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 4.53% compared to the market’s 7.99%, potentially indicative of past headwinds. Since Abterra’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Abterra’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Abterra recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the capital goods industry. However, before you make a decision on the stock, I suggest you look at Abterra’s fundamentals in order to build a holistic investment thesis.
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1. 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.
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2. Historical Track Record: What has L5I’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.
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3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Abterra? 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 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.