China Distance Education Holdings Limited (NYSE:DL), a US$297.59M small-cap, is a consumer services company operating in an industry, whose activities are primarily project-based work with individual clients, which depends on the general sentiment of the economy. Consumer services analysts are forecasting for the entire industry, a positive double-digit growth of 18.20% in the upcoming year . In this article, I’ll take you through the sector growth expectations, and also determine whether China Distance Education Holdings is a laggard or leader relative to its service sector peers. View our latest analysis for China Distance Education Holdings
What’s the catalyst for China Distance Education Holdings’s sector growth?
E-commerce remains a key driver of growth for consumer services, which enables service companies to grow share and reduce cost to serve. A crucial strategy for incumbents is to be well-positioned in response to the growing importance of pure e-commerce players, as well as building up their own capabilities around e-commerce. In the past year, the industry delivered growth in the twenties, beating the US market growth of 9.79%. China Distance Education Holdings lags the pack with its negative growth rate of -40.94% over the past year, which indicates the company will be growing at a slower pace than its consumer services peers. As the company trails the rest of the industry in terms of growth, China Distance Education Holdings may also be a cheaper stock relative to its peers.
Is China Distance Education Holdings and the sector relatively cheap?
Consumer services companies are typically trading at a PE of 23.04x, in-line with the US stock market PE of 18.76x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 10.69% on equities compared to the market’s 10.47%. On the stock-level, China Distance Education Holdings is trading at a PE ratio of 19.73x, which is relatively in-line with the average consumer services stock. In terms of returns, China Distance Education Holdings generated 25.17% in the past year, which is 14.48% over the consumer services sector.
Next Steps:
China Distance Education Holdings has been a consumer services industry laggard in the past year. It delivered lower earnings growth compared to its peers in the near term, and it is also trading at a PE in-line with these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the services sector. However, before you make a decision on the stock, I suggest you look at China Distance Education Holdings’s fundamentals in order to build a holistic investment thesis.