Silver Heritage Group Limited (ASX:SVH), a AUD$58.52M small-cap, is a consumer discretionary company operating in an industry, whose performance is predominantly driven by consumer confidence, which is linked to employment and wage rates. Purchasing power is also a factor of interest rates and lending standards by financial institutions. These macro elements determine how fast, and how often, consumers buy leisure products. Leisure service companies also face a structural shift resulting from technology, which enables them to engage with is customers on a whole new level through online and mobile platforms. This has been a key driver for industry growth. Consumer discretionary analysts are forecasting for the entire industry, a positive double-digit growth of 19.08% in the upcoming year, and a massive growth of 46.84% over the next couple of years. However this rate still came in below the growth rate of the Australian stock market as a whole. Is now the right time to pick up some shares in leisure companies? Today, I will analyse the industry outlook, and also determine whether SVH is a laggard or leader relative to its consumer discretionary sector peers. Check out our latest analysis for Silver Heritage Group
What’s the catalyst for SVH’s sector growth?
Although there is higher competition for consumer leisure time, due to the rise of new activities such as online streaming and mobile games, the whole industry has been expanding in various channels to better interact with its consumer. Traditional incumbents are forced to adapt or fall behind. In the previous year, the industry saw growth in the twenties, though still underperforming the wider Australian stock market. SVH lags the pack with its negative growth rate of -86.56% over the past year, which indicates the company will be growing at a slower pace than its leisure peers. As the company trails the rest of the industry in terms of growth, SVH may also be a cheaper stock relative to its peers.
Is SVH and the sector relatively cheap?
The leisure industry is trading at a PE ratio of 21x, higher than the rest of the Australian stock market PE of 16x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 11.89% on equities compared to the market’s 12.00%. Since SVH’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge SVH’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? SVH has been a leisure industry laggard in the past year. If your initial investment thesis is around the growth prospects of SVH, there are other leisure companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how SVH fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If SVH 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 leisure 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 SVH’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Silver Heritage Group’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 consumer discretionary stocks instead? Use our free playform to see my list of over 100 other consumer discretionary companies trading on the market.
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