M I Acquisitions Inc (NASDAQ:MACQ), a USD$23.91M small-cap, operates in the capital markets industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Financial services analysts are forecasting for the entire industry, a relatively muted growth of 8.70% in the upcoming year, and a strong near-term growth of 27.01% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether MACQ is a laggard or leader relative to its financial sector peers. View our latest analysis for M I Acquisitions
What’s the catalyst for MACQ'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 in the teens, beating the US market growth of 4.49%. MACQ lags the pack with its negative growth rate of -384.42% over the past year, which indicates the company will be growing at a slower pace than its capital markets peers. As the company trails the rest of the industry in terms of growth, MACQ may also be a cheaper stock relative to its peers.
Is MACQ and the sector relatively cheap?
The capital markets sector's PE is currently hovering around 19x, in-line with the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.19% on equities compared to the market’s 9.99%. Since MACQ’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MACQ’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? MACQ has been a capital markets industry laggard in the past year. If your initial investment thesis is around the growth prospects of MACQ, there are other capital markets companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how MACQ fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If MACQ has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its capital markets peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at MACQ’s future cash flows in order to assess whether the stock is trading at a reasonable price.