Zylog Systems Limited (NSEI:ZYLOG), is a INR₹258.98M small-cap, which operates in the software industry based in India. 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 positive double-digit growth of 18.37% in the upcoming year , and an optimistic near-term growth of 18.54% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Zylog Systems is a laggard or leader relative to its tech sector peers. See our latest analysis for Zylog Systems

What’s the catalyst for Zylog Systems’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 growth in the teens, though still underperforming the wider Indian stock market. Zylog Systems 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 Zylog Systems may be trading cheaper than its peers.

Is Zylog Systems and the sector relatively cheap?

The software tech sector’s PE is currently hovering around 19x, below the broader Indian stock market PE of 29x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 11.10% on equities compared to the market’s 9.78%. Since Zylog Systems’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Zylog Systems’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? Zylog Systems 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 Zylog Systems as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value Zylog Systems based on its cash flows to determine if it is overpriced based on its current growth outlook.