Platinum Capital Limited (ASX:PMC), a AUDA$595.90M 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 fairly unexciting growth rate of 6.82% in the upcoming year , and an enormous growth of 41.90% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Platinum Capital is lagging or leading in the industry. See our latest analysis for Platinum Capital

What’s the catalyst for Platinum Capital’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 past year, the industry delivered growth of 3.16%, though still underperforming the wider Australian stock market. Given the lack of analyst consensus in Platinum Capital’s outlook, we could potentially assume the stock’s growth rate broadly follows its capital markets industry peers. This means it is an attractive growth stock relative to the wider Australian stock market.

Is Platinum Capital and the sector relatively cheap?

Capital markets companies are typically trading at a PE of 22x, in-line with the Australian stock market PE of 18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 8.68% compared to the market’s 11.86%, potentially indicative of past headwinds. On the stock-level, Platinum Capital is trading at a lower PE ratio of 10x, making it cheaper than the average capital markets stock. In terms of returns, Platinum Capital generated 12.68% in the past year, which is 3.99% over the capital markets sector.

What this means for you:

Are you a shareholder? Capital markets stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. If growth was one of your main investment catalyst in the sector, now would be the time to revisit your holdings in Platinum Capital. Keep in mind the sector is trading relatively in-line with the rest of the market, which may mean you’ll be selling out at a reasonable price.

Are you a potential investor? The financial sector’s below-market growth and average valuation hardly makes it an exciting investment case. If you’re looking for a high-growth stock with potential mispricing, it seems like capital markets companies like Platinum Capital isn’t the right place to look. However, if you’re interested in the stock for other reasons, I suggest you research more into the company’s cash flow as well as its financial health in order to gain a holistic view of the stock.