Vmoto Limited (ASX:VMT), a A$11.13M small-cap, operates in the auto industry whose long product cycles and deep capital outlays make planning ahead difficult. New growth opportunities in smart cars and software is not the traditional focus for most auto companies. Automobile analysts are forecasting for the entire industry, a strong double-digit growth of 17.44% in the upcoming year , and a massive growth of 35.41% over the next couple of years. This rate is larger than the growth rate of the Australian Today, I will analyse the industry outlook, as well as evaluate whether Vmoto is lagging or leading its competitors in the industry. See our latest analysis for Vmoto
What’s the catalyst for Vmoto’s sector growth?
The increasing presence of tech firms in the auto industry cannot be overlooked or discounted by OEMs. These companies will likely prove to have an immense influence on the auto sector in the coming years, mainly because their skills and the industry’s needs align perfectly – they are adept to connecting value-add components to created networks for information, efficiencies and experiences. In the previous year, the industry saw growth in the teens, beating the Australian market growth of 6.93%. Vmoto 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 Vmoto may be trading cheaper than its peers.
Is Vmoto and the sector relatively cheap?
The automobile sector’s PE is currently hovering around 14.8x, in-line with the Australian stock market PE of 17.8x. 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 14.26% compared to the market’s 11.87%, potentially illustrative of a turnaround. Since Vmoto’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Vmoto’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Vmoto has been an automobile industry laggard in the past year. If Vmoto 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 automobile 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 Vmoto’s fundamentals in order to build a holistic investment thesis.