In This Article:
Gale Pacific Limited (ASX:GAP), a AU$104.50M small-cap, is a consumer discretionary company operating in an industry, whose performance is predominantly driven by consumer confidence. Macro elements tend to determine how fast, and how often, consumers buy big-ticket durable items. Consumer discretionary analysts are forecasting for the entire industry, a strong double-digit growth of 17.37% in the upcoming year , and a strong near-term growth of 22.42% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Gale Pacific is lagging or leading in the industry. See our latest analysis for Gale Pacific
What’s the catalyst for Gale Pacific’s sector growth?
E-commerce continues to be the fastest growing sales platform for consumer discretionary goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. In the past year, the industry delivered growth of 8.29%, beating the Australian market growth of 7.09%. Gale Pacific lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its household durables peers. As the company trails the rest of the industry in terms of growth, Gale Pacific may also be a cheaper stock relative to its peers.
Is Gale Pacific and the sector relatively cheap?
The household durables sector’s PE is currently hovering around 16.79x, relatively similar to the rest of the Australian stock market PE of 17.2x. 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 22.93% compared to the market’s 11.30%, potentially illustrative of past tailwinds. Since Gale Pacific’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Gale Pacific’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Gale Pacific has been a household durables industry laggard in the past year. If Gale Pacific has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its consumer discretionary 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 Gale Pacific’s fundamentals in order to build a holistic investment thesis.