Netlinkz Limited (ASX:NET), is a AUD$22.02M small-cap, which operates in the software industry based in Australia. As various enterprises look to technology to enable their own transformations, the opportunities for technology companies have widened extensively. Tech analysts are forecasting for the entire software tech, industry, a strong double-digit growth of 19.81% in the upcoming year, and an enormous growth of 57.83% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Australian stock market as a whole. Today, I’ll take you through the tech sector growth expectations, as well as evaluate whether NET is lagging or leading in the industry. See our latest analysis for NET
What’s the catalyst for NET's sector growth?
The battle for competitive advantage has led businesses to adopt new the cutting-edge technology, or risk being left behind. Many technologies are now coming into their own as their power and speed increase and the cost of delivering them goes down. And some are pursing growth through various strategies including new M&A, collaboration and alliances, as well as cost reduction and organic growth. Over the past year, the industry saw negative growth of -0.10%, underperforming the Australian market growth of -4.59%. NET leads the pack with its impressive earnings growth of 37.41% over the past year. This proven growth may make NET a more expensive stock relative to its peers.
Is NET and the sector relatively cheap?
The software tech industry is trading at a PE ratio of 26x, above the broader Australian stock market PE of 16x. This means the industry, on average, is relatively overpriced compared to the wider market. However, the industry returned a similar 13.43% on equities compared to the market’s 11.92%. Since NET’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge NET’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? NET recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto NET as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value NET based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If NET has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the tech industry. Before you make a decision on the stock, take a look at NET’s cash flows and assess whether the stock is trading at a fair price.