InnoTek Limited (SGX:M14), a SGD$82.93M small-cap, operates in the machinery manufacturing industry, which faces increasing demand of capital equipment and machinery from developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 10.16% in the upcoming year . Today, I’ll take you through the sector growth expectations, as well as evaluate whether InnoTek is lagging or leading in the industry. Check out our latest analysis for InnoTek
What’s the catalyst for InnoTek’s sector growth?
Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains and operations more efficiently, and build strategic partnerships that will help grow market share. In the past year, the industry delivered growth in the forties, beating the Singapore market growth of 7.92%. InnoTek leads the pack with its impressive earnings growth of over 100% last year. This proven growth may make InnoTek a more expensive stock relative to its peers.
Is InnoTek and the sector relatively cheap?
Machinery companies are typically trading at a PE of 10x, in-line with the Singapore stock market PE of 14x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 10.74% compared to the market’s 7.94%, potentially illustrative of past tailwinds. On the stock-level, InnoTek is trading at a PE ratio of 7x, which is relatively in-line with the average machinery stock. In terms of returns, InnoTek generated 9.57% in the past year, which is 1% below the machinery sector.
What this means for you:
Are you a shareholder? InnoTek recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders, and the stock is currently trading in-line with its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto InnoTek as part of your portfolio. However, if you’re relatively concentrated in machinery, you may want to value InnoTek based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If InnoTek has been on your watchlist for a while, now may be the time to enter into the stock. If you like its proven ability to generate growth, you’ll be paying a fair value for the company, given that it is trading relatively in-line with its peers. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time.