Carraro SpA (BIT:CARR), a €143m small-cap, operates in the machinery manufacturing industry, which faces increasing demand of capital equipment and machinery from developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, an extremely elevated growth of 35% in the upcoming year , and a massive triple-digit earnings growth over the next couple of years. the growth rate of the IT stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Carraro is lagging or leading in the industry.
Check out our latest analysis for Carraro
What’s the catalyst for Carraro’s sector growth?
Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains more efficiently. Over the past year, the industry saw growth in the teens, beating the IT market growth of 17%. Carraro 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 Carraro poised to deliver a 40% growth over the next couple of years compared to the industry’s 35%. This growth may make Carraro a more expensive stock relative to its peers.
Is Carraro and the sector relatively cheap?
Machinery companies are typically trading at a PE of 18.2x, in-line with the IT stock market PE of 16.34x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 14% on equities compared to the market’s 12%. On the stock-level, Carraro is trading at a PE ratio of 16.34x, which is relatively in-line with the average machinery stock. In terms of returns, Carraro generated 15% in the past year, which is 1.0% over the machinery sector.
Next Steps:
Carraro’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If Carraro has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at Carraro’s fundamentals in order to build a holistic investment thesis.