Aumake International Limited (ASX:AU8), a AUDA$157.91M small-cap, is a retail company operating in an industry impacted by the digital transformation for all retail channels. Looking at trends for growth in macroeconomic factors such as inflation and interest rates are important when thinking about investing in retailers. Retail analysts are forecasting for the entire industry, a strong double-digit growth of 15.15% in the upcoming year , and a whopping growth of 42.79% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Aumake International is a laggard or leader relative to its retail peers. Check out our latest analysis for Aumake International
What’s the catalyst for Aumake International’s sector growth?
E-commerce continues to be the fastest growing sales platform for consumer goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. In the past year, the industry delivered growth of 6.21%, though still underperforming the wider Australian stock market. Aumake International 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 Aumake International may be trading cheaper than its peers.
Is Aumake International and the sector relatively cheap?
Retail companies are typically trading at a PE of 16x, relatively similar to the rest of the Australian stock market PE of 18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 13.09% on equities compared to the market’s 11.87%. Since Aumake International’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Aumake International’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Aumake International has been a retail industry laggard in the past year. If your initial investment thesis is around the growth prospects of Aumake International, there are other retail companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Aumake International fits into your wider portfolio and the opportunity cost of holding onto the stock.