Wellington Drive Technologies Limited (NZSE:WDT), a NZDNZ$46.28M small-cap, operates in the electrical equipment industry, which often track the broad economic cycle. During growth, businesses have excess cash, and are comfortable buying ancillary equipement. However, when economic conditions are challenging, businesses may try to repair equipment instead. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 18.04% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the NZ stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Wellington Drive Technologies is lagging or leading in the industry. See our latest analysis for Wellington Drive Technologies
What’s the catalyst for Wellington Drive Technologies’s sector growth?
The electrical equipment industry is relatively fragmented, with an exception of few dominant players with a large portion of sales. Operating structures involve high fixed costs, as well as fluctuating cost of raw materials used in manufacture of products, which impacts the companies’ earnings performance. Over the past year, the industry saw growth in the teens, beating the NZ market growth of 5.42%. Wellington Drive Technologies 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 Wellington Drive Technologies may be trading cheaper than its peers.
Is Wellington Drive Technologies and the sector relatively cheap?
The electrical equipment products industry is trading at a PE ratio of 22x, higher than the rest of the NZ stock market PE of 14x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 9.19% compared to the market’s 12.48%, which may be indicative of past headwinds. Since Wellington Drive Technologies’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Wellington Drive Technologies’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Wellington Drive Technologies 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 Wellington Drive Technologies as part of your portfolio. However, if you’re relatively concentrated in electrical equipment, you may want to value Wellington Drive Technologies based on its cash flows to determine if it is overpriced based on its current growth outlook.