Hercules Hoists Limited (NSE:HERCULES), a ₹3.06b small-cap, is a machinery manufacturing company operating in an industry, which faces increasing demand of capital equipment and machinery from developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, a strong double-digit growth of 16.2% in the upcoming year , and a massive growth of 51.6% over the next couple of years. the growth rate of the Indian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Hercules Hoists is lagging or leading in the industry.

See our latest analysis for Hercules Hoists

What’s the catalyst for Hercules Hoists’s sector growth?

Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains more efficiently. Over the past year, the industry saw growth in the twenties, beating the Indian market growth of 21.8%. Hercules Hoists leads the pack with its impressive earnings growth of 90.4% over the past year. However, analysts are expecting its future earnings growth to be more in-line with the industry average, hovering at 15.7% over the next couple of years.

Is Hercules Hoists and the sector relatively cheap?

Machinery companies are typically trading at a PE of 19.56x, in-line with the Indian stock market PE of 18.3x. 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 11.9% compared to the market’s 9.3%, potentially illustrative of past tailwinds. On the stock-level, Hercules Hoists is trading at a higher PE ratio of 30.77x, making it more expensive than the average machinery stock. In terms of returns, Hercules Hoists generated 2.6% in the past year, which is 9.3% below the machinery sector.

Next Steps:

Hercules Hoists’s future growth prospect aligns with that of the broader market, however its relative value seems to be above the rest of the industry. This could indicate the price is reflective of factors other than growth. If Hercules Hoists has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other capital goods companies. If you’re looking for growth, it seems other industry peers are also delivering the same rate. However, before you make a decision on the stock, I suggest you look at Hercules Hoists’s fundamentals in order to build a holistic investment thesis.

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

2. Historical Track Record: What has HERCULES’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Hercules Hoists? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.