Time2u International Holding Limited (SEHK:1327), a HK$172.80M small-cap, operates in the consumer discretionary industry, whose sales are driven primarily by consumer sentiment and access to capital. These macro factors tend to determine the rate at which consumers purchase luxury goods. Consumer discretionary analysts are forecasting for the entire industry, a positive double-digit growth of 10.89% in the upcoming year , and a whopping growth of 46.18% 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’ll take you through the sector growth expectations, as well as evaluate whether Time2u International Holding is lagging or leading in the industry. See our latest analysis for Time2u International Holding
What’s the catalyst for Time2u International Holding’s sector growth?
E-retailing is expected to remain the fastest growing sales channel, shifting the retail landscape. Significant number of retail store closures and bankruptcies were an indication of both changing consumer preferences and rising online competition. Over the past year, the industry saw negative growth of -5.09%, underperforming the Hong Kong market growth of 11.10%. Time2u International Holding 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 luxury goods peers. As the company trails the rest of the industry in terms of growth, Time2u International Holding may also be a cheaper stock relative to its peers.
Is Time2u International Holding and the sector relatively cheap?
Luxury goods companies are typically trading at a PE of 14.9x, in-line with the Hong Kong stock market PE of 14.5x. 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 9.05% on equities compared to the market’s 10.13%. Since Time2u International Holding’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Time2u International Holding’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Time2u International Holding has been a luxury goods industry laggard in the past year. If Time2u International Holding 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 consumer discretionary 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 Time2u International Holding’s fundamentals in order to build a holistic investment thesis.