The Gruden Group Limited (ASX:GGL), is a AUDA$9.88M small-cap, which operates in the software industry based in Australia. While mobile and cloud computing become ubiquitous, there is a new wave of advancement emerging from innovations such as machine learning, robotics and augmented reality. Tech analysts are forecasting for the entire software tech industry, an extremely elevated growth of 45.26% in the upcoming year , and an enormous growth of 94.70% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether GGL is lagging or leading in the industry. Check out our latest analysis for Gruden Group
What’s the catalyst for GGL’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. In the past year, the industry delivered negative growth of -0.10%, underperforming the Australian market growth of 6.76%. GGL 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 GGL may be trading cheaper than its peers.
Is GGL and the sector relatively cheap?
The software tech industry is trading at a PE ratio of 33x, above the broader Australian stock market PE of 18x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 12.23% on equities compared to the market’s 11.92%. Since GGL’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge GGL’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? GGL has been a tech industry laggard in the past year. If your initial investment thesis is around the growth prospects of GGL, there are other tech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how GGL fits into your wider portfolio and the opportunity cost of holding onto the stock.