iShares Trust – iShares PHLX Semiconductor ETF (NASDAQ:SOXX), a USD$1.34B small-cap, is a capital market firm 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 7.81% 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 US stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether SOXX is lagging or leading in the industry. View our latest analysis for iShares Trust – iShares PHLX Semiconductor ETF
What’s the catalyst for SOXX’s sector growth?
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered growth in the teens, beating the US market growth of 11.19%. SOXX leads the pack with its impressive earnings growth of 75.28% over the past year. This proven growth may make SOXX a more expensive stock relative to its peers.
Is SOXX and the sector relatively cheap?
Capital markets companies are typically trading at a PE of 16x, relatively similar to the rest of the US stock market PE of 19x. 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 higher 12.81% compared to the market’s 10.43%, potentially illustrative of past tailwinds. On the stock-level, SOXX is trading at a lower PE ratio of 5x, making it cheaper than the average capital markets stock. In terms of returns, SOXX generated 36.04% in the past year, which is 23.23% over the capital markets sector.
What this means for you:
Are you a shareholder? SOXX recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. In addition to this, its PE is below its capital markets peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market isn’t as bullish of the growth going forward. If your investment thesis of the company hasn’t changed, now may be the right time to accumulate more of SOXX, if you’re not already highly concentrated in the stock.
Are you a potential investor? If SOXX has been on your watchlist for a while, now may be the best time to enter into the stock. Its industry-beating growth delivered have not been fully accounted for in its shares given its lower PE ratio relative to its peers. Before you make the decision to buy, I recommend you look at other fundamentals factors and see whether there is a reason why the stock may be trading at a discount in the capital markets sector.