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Riverstone Holdings Limited (SGX:AP4), a S$859.7m small-cap, operates in the commercial services industry, whose performance is linked to business conditions and the general economy, as it draws revenue from industries across different sectors. Commercial services analysts are forecasting for the entire industry, a strong double-digit growth of 28.0% in the upcoming year , and a whopping growth of 52.0% over the next couple of years. This rate is larger than the growth rate of the Singapore stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Riverstone Holdings is a laggard or leader relative to its service sector peers.
Check out our latest analysis for Riverstone Holdings
What’s the catalyst for Riverstone Holdings’s sector growth?
A crucial strategy for incumbents is to be well-positioned in response to the growing importance of building up their own capabilities around e-commerce. In the previous year, the industry saw growth of 1.4%, though still underperforming the wider Singapore stock market. Riverstone Holdings leads the pack with its impressive earnings growth of 3.9% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 19.7% compared to the wider commercial services sector growth hovering in the twenties next year. As a future industry laggard in growth, Riverstone Holdings may be a cheaper stock relative to its peers.
Is Riverstone Holdings and the sector relatively cheap?
The commercial services sector’s PE is currently hovering around 12.15x, in-line with the Singapore stock market PE of 11.83x. 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 6.6% on equities compared to the market’s 7.7%. On the stock-level, Riverstone Holdings is trading at a higher PE ratio of 19.95x, making it more expensive than the average commercial services stock. In terms of returns, Riverstone Holdings generated 20.2% in the past year, which is 13.5% over the commercial services sector.
Next Steps:
Riverstone Holdings is a commercial services industry laggard in terms of its future growth outlook. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis.If Riverstone Holdings has been on your watchlist for a while, now may not be the best time to enter into the stock. 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 Riverstone Holdings’s fundamentals in order to build a holistic investment thesis.