TopBetta Holdings Limited (ASX:TBH), a AUDA$64.23M small-cap, is a consumer discretionary company operating in an industry, whose performance is predominantly driven by consumer confidence. Macro elements tend to determine how fast, and how often, consumers buy leisure products. Consumer discretionary analysts are forecasting for the entire industry, a strong double-digit growth of 25.59% in the upcoming year , and a massive growth of 56.17% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether TopBetta Holdings is lagging or leading in the industry. Check out our latest analysis for TopBetta Holdings
What’s the catalyst for TopBetta Holdings’s sector growth?
Although there is higher competition for consumer leisure time, due to the rise of new activities such as online streaming and mobile games, the whole industry has been expanding in various channels to better interact with its consumer. Traditional incumbents are forced to adapt or fall behind. In the previous year, the industry saw growth of 1.81%, though still underperforming the wider Australian stock market. TopBetta Holdings lags the pack with its negative growth rate of -13.37% over the past year, which indicates the company will be growing at a slower pace than its leisure peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 93.75% in the upcoming year.
Is TopBetta Holdings and the sector relatively cheap?
Leisure companies are typically trading at a PE of 24x, 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 returned a similar 11.51% on equities compared to the market’s 11.86%. Since TopBetta Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge TopBetta 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? TopBetta Holdings’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto TopBetta Holdings as part of your portfolio. However, if you’re relatively concentrated in leisure, you may want to value TopBetta Holdings based on its cash flows to determine if it is overpriced based on its current growth outlook.