Milestone Group plc (AIM:MSG), is a GBP£4.18M small-cap, which operates in the software industry based in United Kingdom. While mobile and cloud computing become ubiquitous, there is a new wave of advancement emerging from innovations such as machine learning, robotics and augmented reality. Tech analysts are forecasting for the entire software tech, industry, a strong double-digit growth of 13.67% in the upcoming year, and a massive growth of 33.95% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK stock market as a whole. Today, I’ll take you through the tech sector growth expectations, and also determine whether MSG is a laggard or leader relative to its tech sector peers. View our latest analysis for Milestone Group
What’s the catalyst for MSG’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. In the previous year, the industry saw growth in the teens, beating the UK market growth of 1.54%. MSG lags the pack with its lower growth rate of 4.37% over the past year, which indicates the company will be growing at a slower pace than its software peers. As the company trails the rest of the industry in terms of growth, MSG may also be a cheaper stock relative to its peers.
Is MSG and the sector relatively cheap?
The software tech sector’s PE is currently hovering around 29x, above the broader UK stock market PE of 18x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 17.55% compared to the market’s 12.78%, which may be indicative of past tailwinds. Since MSG’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MSG’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? MSG has been a tech industry laggard in the past year. If your initial investment thesis is around the growth prospects of MSG, there are other tech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how MSG fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If MSG 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 tech 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 MSG’s future cash flows in order to assess whether the stock is trading at a reasonable price.