Capital 3429 Inc (TSXV:TQV.P), a CAD$0.00 small-cap, operates in the capital markets industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Many banks and capital markets firms, particularly the large, complex institutions, have been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, negative growth in the upcoming year, and an optimistic near-term growth of 29 percent over the next couple of years. However, this rate came in below the growth rate of the Canadian stock market as a whole. Should your portfolio be overweight in the capital markets sector at the moment? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether TQV.P is lagging or leading its competitors in the industry. See our latest analysis for TQV.P
What’s the catalyst for TQV.P’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. Over the past year, the industry saw growth of 2 percent, though still underperforming the wider Canadian stock market. Given the lack of analyst consensus in TQV.P’s outlook, we could potentially assume the stock’s growth rate broadly follows its capital markets industry peers. This means it is an attractive growth stock relative to the wider Canadian stock market.
Is TQV.P and the sector relatively cheap?
The capital markets sector’s PE is currently hovering around 29 times, in-line with the Canadian stock market PE of 24 times. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 9 percent compared to the market’s 13 percent, potentially indicative of past headwinds. Since TQV.P’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge TQV.P’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Capital markets stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. If growth was one of your main investment catalyst in the sector, now would be the time to revisit your holdings in TQV.P. Keep in mind the sector is trading relatively in-line with the rest of the market, which may mean you’ll be selling out at a reasonable price.
Are you a potential investor? The financial sector’s below-market growth and average valuation hardly makes it an exciting investment case. If you’re looking for a high-growth stock with potential mispricing, it seems like capital markets companies like TQV.P isn’t the right place to look. However, if you’re interested in the stock for other reasons, I suggest you research more into the company’s cash flow as well as its financial health in order to gain a holistic view of the stock.
For a deeper dive into Capital 3429’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other financial stocks instead? Use our free playform to see my list of over 600 other financial companies trading on the market.
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