carsalescom Ltd (ASX:CAR), is a AUDA$3.67B mid-cap, which operates in the software industry based in Australia. As various enterprises look to technology to enable their own transformations, the opportunities for technology companies have widened extensively. Tech analysts are forecasting for the entire software tech industry, a highly optimistic growth of 45.26% in the upcoming year , and a massive 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. Below, I will examine the sector growth prospects, as well as evaluate whether carsales.com is lagging or leading in the industry. Check out our latest analysis for carsales.com
What’s the catalyst for carsales.com’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 6.88%. carsales.com is neither a lagger nor a leader, and has been growing in-line with its industry peers at around -0.10% in the prior year. Furthermore, analysts are expecting the company to continue to grow with its industry peers and deliver a 45.60% growth next year.
Is carsales.com and the sector relatively cheap?
The software tech industry is trading at a PE ratio of 35x, 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 did return a higher 14.32% compared to the market’s 11.86%, which may be indicative of past tailwinds. On the stock-level, carsales.com is trading at a PE ratio of 33x, which is relatively in-line with the average tech stock. In terms of returns, carsales.com generated 42.05% in the past year, which is 27.73% over the tech sector.
What this means for you:
Are you a shareholder? carsales.com’s future growth prospect aligns with that of the broader market and it is trading in-line with its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto carsales.com as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value carsales.com based on its cash flows to determine if it is overpriced based on its current growth outlook.