Goldfields Money Limited (ASX:GMY), a AUDA$32.66M small-cap, is a bank operating in an industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Financial services analysts are forecasting for the entire industry, a fairly unexciting growth rate of 0.43% in the upcoming year , and a robust short-term growth of 11.24% 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 will analyse the industry outlook, as well as evaluate whether Goldfields Money is lagging or leading in the industry. Check out our latest analysis for Goldfields Money
What’s the catalyst for Goldfields Money’s sector growth?
There is a growing awareness that banks cannot excel at every activity, and that it may be easier and cheaper to outsource noncore activities. However, the threat of disintermediation in the payments industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw growth of 3.60%, though still underperforming the wider Australian stock market. Goldfields Money lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its banking peers. As the company trails the rest of the industry in terms of growth, Goldfields Money may also be a cheaper stock relative to its peers.
Is Goldfields Money and the sector relatively cheap?
Banking companies are typically trading at a PE of 13x, 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 10.98% on equities compared to the market’s 11.92%. Since Goldfields Money’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Goldfields Money’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Goldfields Money has been a banking industry laggard in the past year. If your initial investment thesis is around the growth prospects of Goldfields Money, there are other banking companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Goldfields Money fits into your wider portfolio and the opportunity cost of holding onto the stock.