Gores Holdings II Inc (NASDAQ:GSHT), a $496.00M 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 9.31% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Gores Holdings II is a laggard or leader relative to its financial sector peers. Check out our latest analysis for Gores Holdings II
What’s the catalyst for Gores Holdings II’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 previous year, the industry saw growth in the teens, beating the US market growth of 10.47%. Given the lack of analyst consensus in Gores Holdings II’s outlook, we could potentially assume the stock’s growth rate broadly follows its capital markets industry peers. This means it is an attractive growth stock relative to the wider US stock market.
Is Gores Holdings II and the sector relatively cheap?
Capital markets companies are typically trading at a PE of 17.7x, relatively similar to the rest of the US stock market PE of 20.1x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 13.60% compared to the market’s 10.43%, potentially illustrative of past tailwinds. Since Gores Holdings II’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Gores Holdings II’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Capital markets stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. If growth was one of your main investment catalyst in the sector, now would be the time to revisit your holdings in Gores Holdings II. Keep in mind the sector is trading relatively in-line with the rest of the market, which may mean you’ll be selling out at a reasonable price. However, before you make a decision on the stock, I suggest you look at Gores Holdings II’s fundamentals in order to build a holistic investment thesis.