Alps Industries Limited (NSEI:ALPSINDUS), a INR₹229.21M small-cap, is a consumer discretionary company operating in an industry, whose sales are driven primarily by consumer sentiment and access to capital. These macro factors tend to determine the rate at which consumers purchase luxury goods. Consumer discretionary analysts are forecasting for the entire industry, a somewhat weaker growth of 8.28% in the upcoming year . Today, I will analyse the industry outlook, as well as evaluate whether Alps Industries is lagging or leading in the industry. See our latest analysis for Alps Industries
What’s the catalyst for Alps Industries’s sector growth?
E-retailing is expected to remain the fastest growing sales channel, shifting the retail landscape. Significant number of retail store closures and bankruptcies were an indication of both changing consumer preferences and rising online competition. In the previous year, the industry saw growth of 3.81%, though still underperforming the wider Indian stock market. Alps Industries 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 Alps Industries may be trading cheaper than its peers.
Is Alps Industries and the sector relatively cheap?
The luxury goods industry is trading at a PE ratio of 13x, below the broader Indian stock market PE of 28x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry did returned a lower 6.98% compared to the market’s 9.83%, which may explain the lower relative valuation. Since Alps Industries’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Alps Industries’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Alps Industries 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 Alps Industries as part of your portfolio. However, if you’re relatively concentrated in luxury goods, you may want to value Alps Industries based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Alps Industries 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 luxury goods industry. Before you make a decision on the stock, take a look at Alps Industries’s cash flows and assess whether the stock is trading at a fair price.