Queste Communications Ltd (ASX:QUE), a AUD$1.68M small-cap, is a capital market firm operating in an industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. 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, a strong double-digit growth of 15.83% in the upcoming year, and an enormous growth of 33.51% over the next couple of years. However this rate still came in below the growth rate of the Australian stock market as a whole. Should your portfolio be overweight in the capital markets sector at the moment? Today, I will analyse the industry outlook, as well as evaluate whether QUE is lagging or leading its competitors in the industry. View our latest analysis for Queste Communications
What’s the catalyst for QUE’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 past year, the industry delivered negative growth of -7.60%, underperforming the Australian market growth of 562.28%. QUE lags the pack with its negative growth rate of -261.04% over the past year, which indicates the company will be growing at a slower pace than its capital markets peers. As the company trails the rest of the industry in terms of growth, QUE may also be a cheaper stock relative to its peers.
Is QUE and the sector relatively cheap?
The capital markets sector’s PE is currently hovering around 22x, higher than the rest of the Australian stock market PE of 16x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 8.70% compared to the market’s 12.00%, which may be indicative of past headwinds. Since QUE’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge QUE’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? QUE has been a capital markets industry laggard in the past year. If your initial investment thesis is around the growth prospects of QUE, there are other capital markets companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how QUE fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If QUE 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 capital markets 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 QUE’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Queste Communications’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.
How is Warren Buffet’s advice working out for Bill Gates?
Bill Gates dropped out of college to found Microsoft. He’s a prodigy who has become one of the richest men in the world. But when it comes to the stock market, he follows the advice of billionaire investor Warren Buffett. So what stocks is he holding today? Click here to view a FREE detailed infographic analysis of Bill & Melinda Gates Foundation’s portfolio.