Giga-tronics Incorporated (NASDAQ:GIGA), is a USD$4.77M small-cap, which operates in the tech hardware industry based in United States. Whether it’s the next big thing in tech or an alliance with a partner in another industry, tech companies have plenty of opportunities for their companies to thrive. Tech analysts are forecasting for the entire hardware tech industry, a strong double-digit growth of 15.62% in the upcoming year , and a whopping growth of 52.89% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, and also determine whether GIGA is a laggard or leader relative to its tech sector peers. See our latest analysis for GIGA
What’s the catalyst for GIGA’s sector growth?
Despite all the opportunities, tech companies still face a host of challenges, including coping with an increasingly burdensome global regulation. Since the regulatory environment is unlikely to become less complex, organizations will need to address the constantly evolving rules for governing privacy, security and handling of data, as well as cybersecurity issues. Over the past year, the industry saw growth in the twenties, beating the US market growth of 10.30%. GIGA 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 GIGA may be trading cheaper than its peers.
Is GIGA and the sector relatively cheap?
The tech hardware sector’s PE is currently hovering around 26x, in-line with the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.55% on equities compared to the market’s 10.06%. Since GIGA’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge GIGA’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? GIGA 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 GIGA as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value GIGA based on its cash flows to determine if it is overpriced based on its current growth outlook.