EVE Investments Limited (ASX:EVE), a AUDA$36.31M small-cap, is a capital market firm operating in an industry, which has been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, a somewhat weaker growth of 6.82% in the upcoming year , and an enormous growth of 41.90% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether EVE Investments is a laggard or leader relative to its financial sector peers. See our latest analysis for EVE Investments

What’s the catalyst for EVE Investments’s sector growth?

The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered growth of 3.16%, though still underperforming the wider Australian stock market. EVE Investments 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 EVE Investments may be trading cheaper than its peers.

Is EVE Investments and the sector relatively cheap?

The capital markets industry is trading at a PE ratio of 22x, 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. However, the industry returned a lower 8.68% compared to the market’s 11.86%, potentially indicative of past headwinds. Since EVE Investments’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge EVE Investments’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? EVE Investments recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto EVE Investments as part of your portfolio. However, if you’re relatively concentrated in capital markets, you may want to value EVE Investments based on its cash flows to determine if it is overpriced based on its current growth outlook.

Are you a potential investor? If EVE Investments has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the capital markets industry. Before you make a decision on the stock, take a look at EVE Investments’s cash flows and assess whether the stock is trading at a fair price.

For a deeper dive into EVE Investments’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 financial stocks instead? Use our free playform to see my list of over 600 other financial 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.