China Finance Online Co Limited (NASDAQ:JRJC), is a US$51.02M small-cap, which operates in the software industry based in China. In the past decade, mega-tech companies, have built highly successful and ubiquitous platforms and ecosystem in which smaller companies gravitate towards. Tech analysts are forecasting for the entire software tech industry, a strong double-digit growth of 16.40% in the upcoming year , and a whopping growth of 34.25% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. Today, I’ll take you through the tech sector growth expectations, and also determine whether China Finance Online is a laggard or leader relative to its tech sector peers. Check out our latest analysis for China Finance Online
What’s the catalyst for China Finance Online’s sector growth?
Despite all the opportunities, tech companies still face a host of challenges, including coping with an increasingly burdensome global regulation. Since the regulatory environment is unlikely to become less complex, organizations will need to address the constantly evolving rules for governing privacy, security and handling of data, as well as cybersecurity issues. In the past year, the industry delivered growth in the teens, beating the US market growth of 9.79%. China Finance Online 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 China Finance Online may be trading cheaper than its peers.
Is China Finance Online and the sector relatively cheap?
The software tech sector’s PE is currently hovering around 29.26x, above the broader US stock market PE of 18.76x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 10.32% on equities compared to the market’s 10.47%. Since China Finance Online’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge China Finance Online’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
China Finance Online has been an tech industry laggard in the past year. If China Finance Online has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its tech peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at China Finance Online’s fundamentals in order to build a holistic investment thesis.