Hills Limited (ASX:HIL), is a AUDA$47.56M small-cap, which operates in the tech hardware industry based in Australia. While mobile and cloud computing become ubiquitous, there is a new wave of advancement emerging from innovations such as machine learning, robotics and augmented reality. Tech analysts are forecasting for the entire hardware tech industry, a positive double-digit growth of 15.31% in the upcoming year . Today, I will analyse the industry outlook, as well as evaluate whether Hills is lagging or leading in the industry. See our latest analysis for Hills
What’s the catalyst for Hills’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 growth in the teens, beating the Australian market growth of 6.76%. Hills 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 Hills may be trading cheaper than its peers.
Is Hills and the sector relatively cheap?
The tech hardware industry is trading at a PE ratio of 22x, in-line with the Australian stock market PE of 18x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.95% on equities compared to the market’s 11.89%. Since Hills’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Hills’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Hills 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 Hills as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value Hills based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Hills 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 tech industry. Before you make a decision on the stock, take a look at Hills’s cash flows and assess whether the stock is trading at a fair price.