HiTech Group Australia Limited (ASX:HIT), a AU$37.48M small-cap, is a professional services company operating in an industry, whose performance is linked to business conditions and the general economy, as it draws revenue from industries across different sectors. Professional services analysts are forecasting for the entire industry, an extremely robust growth of 45.01% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Australian stock market as a whole. In this article, I’ll take you through the sector growth expectations, and also determine whether HiTech Group Australia is a laggard or leader relative to its service sector peers. See our latest analysis for HiTech Group Australia
What’s the catalyst for HiTech Group Australia’s sector growth?
Business conditions are changing quickly for the service industry, with increased market competition primarily from new entrants entering into the space. Given activities are primarily project-based, the performance of the industry depends on the activities of other sectors. In the past year, the industry delivered negative growth of -2.34%, underperforming the Australian market growth of 10.22%. HiTech Group Australia lags the pack with its negative growth rate of -14.87% over the past year, which indicates the company will be growing at a slower pace than its professional services peers. Although HiTech Group Australia is poised to deliver a 4.70% growth next year, moving it from negative to positive territory, it still lags its industry average rate of growth of 45.01%.
Is HiTech Group Australia and the sector relatively cheap?
The professional services sector’s PE is currently hovering around 19.55x, 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. Furthermore, the industry returned a similar 12.33% on equities compared to the market’s 11.70%. On the stock-level, HiTech Group Australia is trading at a PE ratio of 15.01x, which is relatively in-line with the average professional services stock. In terms of returns, HiTech Group Australia generated 36.74% in the past year, which is 24.41% over the professional services sector.
Next Steps:
If HiTech Group Australia has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a professional services industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the services sector. However, before you make a decision on the stock, I suggest you look at HiTech Group Australia’s fundamentals in order to build a holistic investment thesis.