Chapmans Limited (ASX:CHP), a AUDA$3.67M small-cap, is a capital market firm operating in an industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 15.73% in the upcoming year , and an enormous growth of 39.10% over the next couple of years. This rate is larger than 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 CHP is lagging or leading in the industry. View our latest analysis for Chapmans

What’s the catalyst for CHP’s sector growth?

The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the previous year, the industry endured negative growth of -3.30%, though still outperfoming the wider market growth of -4.59%. CHP 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 capital markets peers. As the company trails the rest of the industry in terms of growth, CHP may also be a cheaper stock relative to its peers.

Is CHP and the sector relatively cheap?

The capital markets industry is trading at a PE ratio of 22x, above the broader Australian stock market PE of 16x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 8.70% compared to the market’s 11.92%, which may be indicative of past headwinds. Since CHP’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CHP’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? CHP has been a capital markets industry laggard in the past year. If your initial investment thesis is around the growth prospects of CHP, there are other capital markets companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how CHP fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If CHP has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its capital markets peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at CHP’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Chapmans’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other financial stocks instead? Use our free playform to see my list of over 600 other financial companies trading on the market.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.