Hupsteel Limited (SGX:BMH), a SGD$109.23M small-cap, operates in the trading and distribution industry which is facing massive upheavals from industry convergence, and new forms of competition and business models. Capital goods analysts are forecasting for the entire industry, a fairly unexciting growth rate of 9.52% 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 Singapore stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Hupsteel is a laggard or leader relative to its capital goods peers. View our latest analysis for Hupsteel
What’s the catalyst for Hupsteel’s sector growth?
Distributors are increasingly focusing on improving efficiency and cost-cutting as new forces continue to disrupt traditional distribution models. Technological advances have brought about new competitors, such as Amazon, and while some distributors feel that e-tailers can’t match their personal approach, many customers may feel differently as buying online becomes cheaper and more efficient. Over the past year, the industry saw growth of 8.95%, beating the Singapore market growth of 7.92%. Given the lack of analyst consensus in Hupsteel’s outlook, we could potentially assume the stock’s growth rate broadly follows its distribution industry peers. This means it is an attractive growth stock relative to the wider Singapore stock market.
Is Hupsteel and the sector relatively cheap?
The distribution industry is trading at a PE ratio of 17x, relatively similar to the rest of the Singapore stock market PE of 14x. 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 5.04% compared to the market’s 7.92%, potentially indicative of past headwinds. On the stock-level, Hupsteel is trading at a PE ratio of 20x, which is relatively in-line with the average distribution stock. In terms of returns, Hupsteel generated 3.31% in the past year, which is 2% below the distribution sector.
What this means for you:
Are you a shareholder? Distribution stocks are currently expected to grow faster than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards high-growth. The industry is trading relatively in-line with the market, which means you may be paying a fair value for the capital goods stocks should you wish to accumulate more of your holdings.