OtherLevels Holdings Limited (ASX:OLV), is a AUD$6.74M small-cap, which operates in the software industry based in Australia. Technology has become a vital component of every industry, bringing unprecedented opportunities for growth, along with challenges and competition Tech analysts are forecasting for the entire software tech, industry, a positive double-digit growth of 14.75% in the upcoming year, and a massive growth of 56.31% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether OLV is lagging or leading in the industry. See our latest analysis for OLV
What’s the catalyst for OLV'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 previous year, the industry endured negative growth of -4.59%, underperforming the Australian market growth of -4.59%. OLV leads the pack with its impressive earnings growth of 45.38% over the past year. This proven growth may make OLV a more expensive stock relative to its peers.
Is OLV and the sector relatively cheap?
The software tech sector's PE is currently hovering around 34x, above the broader Australian stock market PE of 16x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 18.70% compared to the market’s 11.92%, which may be indicative of past tailwinds. Since OLV’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge OLV’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? OLV 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 OLV as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value OLV based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If OLV 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 tech industry. Before you make a decision on the stock, take a look at OLV’s cash flows and assess whether the stock is trading at a fair price.