DigitalX Limited (ASX:DCC), is a AUD$27.39M 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, and also determine whether DCC is a laggard or leader relative to its tech sector peers. Check out our latest analysis for DigitalX

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

US-based mega-competitors, such as Alphabet, Apple and Facebook, have been and appears to 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 -4.59%, underperforming the Australian market growth of -4.59%. DCC leads the pack with its impressive earnings growth of 21.62% over the past year. This proven growth may make DCC a more expensive stock relative to its peers.

Is DCC and the sector relatively cheap?

The software tech industry is trading at a PE ratio of 34x, higher than the rest of the Australian stock market PE of 16x. This illustrates a somewhat overpriced sector compared to the rest of the 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 DCC’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge DCC’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? DCC 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 DCC as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value DCC based on its cash flows to determine if it is overpriced based on its current growth outlook.

Are you a potential investor? If DCC 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 DCC’s cash flows and assess whether the stock is trading at a fair price.