China New Higher Education Group Limited (HKG:2001), a HK$8.10b small-cap, is a consumer services company operating in an industry, whose activities are primarily project-based work with individual clients, which depends on the general sentiment of the economy. Consumer services analysts are forecasting for the entire industry, a highly optimistic growth of 31.3% in the upcoming year , and an enormous triple-digit earnings growth over the next couple of years. This rate is larger than the growth rate of the Hong Kong stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether China New Higher Education Group is lagging or leading in the industry.

Check out our latest analysis for China New Higher Education Group

What’s the catalyst for China New Higher Education Group’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. Over the past year, the industry saw growth in the thirties, beating the Hong Kong market growth of 15.4%. China New Higher Education Group leads the pack with its impressive earnings growth of over 100% last year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with China New Higher Education Group poised to deliver a 35.6% growth over the next couple of years compared to the industry’s 31.3%. This growth may make China New Higher Education Group a more expensive stock relative to its peers.

Is China New Higher Education Group and the sector relatively cheap?

The consumer services sector’s PE is currently hovering around 25.78x, above the broader Hong Kong stock market PE of 11.71x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 12.8% compared to the market’s 9.6%, which may be indicative of past tailwinds. On the stock-level, China New Higher Education Group is trading at a PE ratio of 28.45x, which is relatively in-line with the average consumer services stock. In terms of returns, China New Higher Education Group generated 13.5% in the past year, in-line with its industry average.

Next Steps:

If China New Higher Education Group has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a consumer 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 China New Higher Education Group’s fundamentals in order to build a holistic investment thesis.

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

2. Historical Track Record: What has 2001’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of China New Higher Education Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.