The Independent Investment Trust PLC (LSE:IIT), a GBP£364.99M small-cap, operates in the capital markets 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, negative growth 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 UK stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Independent Investment Trust is a laggard or leader relative to its financial sector peers. View our latest analysis for Independent Investment Trust
What’s the catalyst for Independent Investment Trust’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 twenties, beating the UK market growth of 11.51%. Independent Investment Trust leads the pack with its impressive earnings growth of over 100% last year. This proven growth may make Independent Investment Trust a more expensive stock relative to its peers.
Is Independent Investment Trust and the sector relatively cheap?
The capital markets sector’s PE is currently hovering around 18x, relatively similar to the rest of the UK 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 12.86% on equities compared to the market’s 12.75%. On the stock-level, Independent Investment Trust is trading at a lower PE ratio of 5x, making it cheaper than the average capital markets stock. In terms of returns, Independent Investment Trust generated 29.50% in the past year, which is 16.63% over the capital markets sector.
What this means for you:
Are you a shareholder? Independent Investment Trust 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 Independent Investment Trust, if you’re not already highly concentrated in the stock.
Are you a potential investor? If Independent Investment Trust 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.