CAQ Holdings Limited (ASX:CAQ), a AUDA$57.42M small-cap, is a real estate company operating in an industry which remains the single largest sector globally, and has continued to play a key role in investor portfolios. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Australian stock market as a whole. Today, I’ll take you through the real estate sector outlook, as well as evaluate whether CAQ is lagging or leading in the industry. View our latest analysis for CAQ Holdings
What’s the catalyst for CAQ’s sector growth?
Not every category of real estate is likely to be impacted the same by macroeconomic factors such as interest rate hikes, and not all locations are primed to grow. So, investors must remain cautiously optimistic and analyse the fundamentals of the underlying industry. In the previous year, the industry endured negative growth of -6.03%, underperforming the Australian market growth of 6.88%. CAQ 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 CAQ may be trading cheaper than its peers.
Is CAQ and the sector relatively cheap?
The real estate sector’s PE is currently hovering around 15x, 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. However, the industry returned a lower 8.99% compared to the market’s 11.91%, potentially indicative of past headwinds. Since CAQ’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CAQ’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? CAQ 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 CAQ as part of your portfolio. However, if you’re relatively concentrated in real estate, you may want to value CAQ based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If CAQ has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the real estate industry. Before you make a decision on the stock, take a look at CAQ’s cash flows and assess whether the stock is trading at a fair price.