Frontier Digital Ventures Limited (ASX:FDV), is a AU$150.55M small-cap, which operates in the software industry based in Malaysia. The past two decades have experienced unprecedented changes in technology, and the next decade looks equally drastic. Tech analysts are forecasting for the entire software tech industry, an extremely elevated growth of 46.97% in the upcoming year , and a massive growth of 98.02% 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, and also determine whether Frontier Digital Ventures is a laggard or leader relative to its tech sector peers. Check out our latest analysis for Frontier Digital Ventures
What’s the catalyst for Frontier Digital Ventures’s sector growth?
US-based mega-competitors have been, and continue to be, the key drivers of industry growth. Many tech companies are repositioning themselves by focusing on high-growth areas such as IBM’s artificial intelligence play in Watson and Adobe’s shift to marketing its product for cloud computing. Over the past year, the industry saw negative growth of -0.00096%, underperforming the Australian market growth of 7.09%. Frontier Digital Ventures leads the pack with its impressive earnings growth of 89.42% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -32.27% compared to the wider software sector growth hovering in the forties next year.
Is Frontier Digital Ventures and the sector relatively cheap?
The software tech sector’s PE is currently hovering around 31.24x, higher than the rest of the Australian stock market PE of 17.06x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 11.03% on equities compared to the market’s 11.83%. Since Frontier Digital Ventures’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Frontier Digital Ventures’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Frontier Digital Ventures is an tech industry laggard in terms of its future growth outlook. If Frontier Digital Ventures has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth is expected to be lower than its tech peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Frontier Digital Ventures’s fundamentals in order to build a holistic investment thesis.