Silver Heritage Group Limited (ASX:SVH), a AUD$64.38M small-cap, operates in the consumer discretionary industry, whose sales are driven primarily by consumer sentiment and access to capital. These macro factors tend to determine the rate at which consumers purchase leisure products. Consumer discretionary analysts are forecasting for the entire industry, an extremely robust growth of 32.62% in the upcoming year, and an enormous growth of 61.92% 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 SVH is lagging or leading in the industry. Check out our latest analysis for Silver Heritage Group

What’s the catalyst for SVH's sector growth?

Although there is higher competition for consumer leisure time, due to the rise of new activities such as online streaming and mobile games, the whole industry has been expanding in various channels to better interact with its consumer. Traditional incumbents are forced to adapt or fall behind. In the previous year, the industry endured negative growth of -1.24%, underperforming the Australian market growth of -4.59%. SVH lags the pack with its negative growth rate of -86.56% over the past year, which indicates the company will be growing at a slower pace than its leisure peers. As the company trails the rest of the industry in terms of growth, SVH may also be a cheaper stock relative to its peers.

Is SVH and the sector relatively cheap?

Leisure companies are typically trading at a PE of 24x, 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 returned a similar 11.89% on equities compared to the market’s 11.92%. Since SVH’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge SVH’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? SVH has been a leisure industry laggard in the past year. If your initial investment thesis is around the growth prospects of SVH, there are other leisure companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how SVH fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If SVH 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 leisure 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 SVH’s future cash flows in order to assess whether the stock is trading at a reasonable price.