KS Energy Limited (SGX:578), a S$19.59M small-cap, is a trading and distribution company operating in an industry which is facing massive upheavals from industry convergence, and new forms of competition and business models. Capital goods analysts are forecasting for the entire industry, a strong double-digit growth of 11.50% in the upcoming year . Today, I’ll take you through the sector growth expectations, and also determine whether KS Energy is a laggard or leader relative to its capital goods peers. View our latest analysis for KS Energy
What’s the catalyst for KS Energy’s sector growth?
Distributors are increasingly focusing on improving efficiency and cost-cutting as new forces continue to disrupt traditional distribution models. Technological advances have brought about new competitors, such as Amazon, and while some distributors feel that e-tailers can’t match their personal approach, many customers may feel differently as buying online becomes cheaper and more efficient. In the previous year, the industry endured negative growth of -8.07%, underperforming the Singapore market growth of 11.99%. KS Energy lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means KS Energy may be trading cheaper than its peers.
Is KS Energy and the sector relatively cheap?
The distribution industry is trading at a PE ratio of 14.6x, in-line with the Singapore stock market PE of 13.95x. 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 lower 4.53% compared to the market’s 7.99%, potentially indicative of past headwinds. Since KS Energy’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge KS Energy’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
KS Energy recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the capital goods industry. However, before you make a decision on the stock, I suggest you look at KS Energy’s fundamentals in order to build a holistic investment thesis.
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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.
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2. Historical Track Record: What has 578’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.
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3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of KS Energy? 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 pass 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.