Quest Investments Limited (ASX:QST), a A$12.44M small-cap, operates in the capital markets industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Financial services analysts are forecasting for the entire industry, a fairly unexciting growth rate of 7.56% in the upcoming year , and an enormous growth of 41.61% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Quest Investments is lagging or leading in the industry. See our latest analysis for Quest Investments
What’s the catalyst for Quest Investments’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 previous year, the industry saw growth of 6.89%, though still underperforming the wider Australian stock market. Quest Investments lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Quest Investments may be trading cheaper than its peers.
Is Quest Investments and the sector relatively cheap?
Capital markets companies are typically trading at a PE of 23.4x, above the broader Australian stock market PE of 17.9x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 8.62% compared to the market’s 11.86%, which may be indicative of past headwinds. Since Quest Investments’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Quest Investments’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Quest Investments has been a capital markets industry laggard in the past year. If Quest Investments 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 financial 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 Quest Investments’s fundamentals in order to build a holistic investment thesis.
-
1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
-
2. Historical Track Record: What has QST’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
-
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Quest Investments? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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.