Quickstep Holdings Limited (ASX:QHL), a AUDA$45.59M small-cap, operates in the aerospace and defence (A&D) industry, which is experiencing a high rate of change resulting from new tech and business models. Capital goods analysts are forecasting for the entire industry, a relatively muted growth of 7.07% in the upcoming year , and an optimistic near-term growth of 25.95% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Quickstep Holdings is lagging or leading in the industry. Check out our latest analysis for Quickstep Holdings
What’s the catalyst for Quickstep Holdings’s sector growth?
Stable global gross domestic product growth, relatively lower commodity prices including crude oil, and strong passenger travel demand, especially in the Middle East and Asia Pacific regions, will likely drive the commercial aerospace sub-sector growth. In the past year, the industry delivered negative growth of -6.90%, underperforming the Australian market growth of 6.82%. Quickstep Holdings 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 Quickstep Holdings may be trading cheaper than its peers.
Is Quickstep Holdings and the sector relatively cheap?
A&D companies are typically trading at a PE of 22x, in-line with 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 12.45% on equities compared to the market’s 11.89%. Since Quickstep Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Quickstep Holdings’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Quickstep Holdings recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Quickstep Holdings as part of your portfolio. However, if you’re relatively concentrated in A&D, you may want to value Quickstep Holdings based on its cash flows to determine if it is overpriced based on its current growth outlook.