Rajvir Industries Limited (NSEI:RAJVIR), a INR₹169.38M small-cap, operates in the consumer discretionary industry, whose sales are driven primarily by consumer sentiment and access to capital. These macro factors tend to determine the rate at which consumers purchase luxury goods. Consumer discretionary analysts are forecasting for the entire industry, a relatively muted growth of 8.28% in the upcoming year . Today, I will analyse the industry outlook, as well as evaluate whether Rajvir Industries is lagging or leading in the industry. View our latest analysis for Rajvir Industries

What’s the catalyst for Rajvir Industries’s sector growth?

E-commerce continues to be the fastest growing sales platform for consumer discretionary goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. Over the past year, the industry saw growth of 3.81%, though still underperforming the wider Indian stock market. Rajvir Industries 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 Rajvir Industries may be trading cheaper than its peers.

Is Rajvir Industries and the sector relatively cheap?

Luxury goods companies are typically trading at a PE of 13x, below the broader Indian stock market PE of 29x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry did returned a lower 6.98% compared to the market’s 9.78%, which may explain the lower relative valuation. Since Rajvir Industries’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Rajvir Industries’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

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

Are you a potential investor? If Rajvir Industries 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 luxury goods 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 Rajvir Industries’s future cash flows in order to assess whether the stock is trading at a reasonable price.