BH Global Corporation Limited (SGX:BQN), a SGD$30.00M small-cap, is an electrical equipment company operating in an industry, which often track the broad economic cycle. During growth, businesses have excess cash, and are comfortable buying ancillary equipement. However, when economic conditions are challenging, businesses may try to repair equipment instead. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 17.59% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Singapore stock market as a whole. Today, I’ll take you through the sector growth expectations, and also determine whether BH Global is a laggard or leader relative to its capital goods peers. See our latest analysis for BH Global

What’s the catalyst for BH Global’s sector growth?

The electrical equipment industry is relatively fragmented, with an exception of few dominant players with a large portion of sales. Operating structures involve high fixed costs, as well as fluctuating cost of raw materials used in manufacture of products, which impacts the companies’ earnings performance. Over the past year, the industry saw growth of over 50%, beating the Singapore market growth of 7.92%. BH Global 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 electrical equipment peers. As the company trails the rest of the industry in terms of growth, BH Global may also be a cheaper stock relative to its peers.

Is BH Global and the sector relatively cheap?

The electrical equipment products sector’s PE is currently hovering around 21x, above the broader Singapore stock market PE of 15x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 9.15% on equities compared to the market’s 7.94%. Since BH Global’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge BH Global’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

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

Are you a potential investor? If BH Global 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 electrical equipment 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 BH Global’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into BH Global’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 capital goods stocks instead? Use our free playform to see my list of over 100 other electrical equipment 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.