The Mint Corporation (TSXV:MIT), a CAD$11.48M small-cap, is a consumer finance company operating in an industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Financial services analysts are forecasting for the entire industry, a strong double-digit growth of 12.97% in the upcoming year, and a massive growth of 35.01% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Canadian stock market as a whole. Today, I’ll take you through the sector growth expectations, and also determine whether MIT is a laggard or leader relative to its financial sector peers. View our latest analysis for Mint
What’s the catalyst for MIT's sector growth?
The threat of disintermediation in the consumer finance industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered negative growth of -24.99%, underperforming the Canadian market growth of -19.21%. MIT leads the pack with its impressive earnings growth of 57.73% over the past year. This proven growth may make MIT a more expensive stock relative to its peers.
Is MIT and the sector relatively cheap?
The consumer finance sector's PE is currently hovering around 13x, relatively similar to the rest of the Canadian stock market PE of 17x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 12.90% compared to the market’s 9.49%, potentially illustrative of past tailwinds. Since MIT’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MIT’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? MIT 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 MIT as part of your portfolio. However, if you’re relatively concentrated in consumer finance, you may want to value MIT based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If MIT 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 consumer finance industry. Before you make a decision on the stock, take a look at MIT’s cash flows and assess whether the stock is trading at a fair price.