Mejority Capital Limited (ASX:MJC), a AU$2.56M small-cap, operates in the capital markets industry, which has been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, a somewhat weaker growth of 6.43% in the upcoming year , and a massive growth of 33.03% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether Mejority Capital is lagging or leading in the industry. View our latest analysis for Mejority Capital
What’s the catalyst for Mejority Capital’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. Over the past year, the industry saw growth of 7.73%, beating the Australian market growth of 6.90%. Mejority Capital 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 Mejority Capital may be trading cheaper than its peers.
Is Mejority Capital and the sector relatively cheap?
Capital markets companies are typically trading at a PE of 21.87x, relatively similar to the rest of the Australian stock market PE of 17.15x. 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 lower 7.28% compared to the market’s 11.37%, potentially indicative of past headwinds. Since Mejority Capital’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Mejority Capital’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Mejority Capital recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the financial industry. However, before you make a decision on the stock, I suggest you look at Mejority Capital’s fundamentals in order to build a holistic investment thesis.
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1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
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2. Historical Track Record: What has MJC’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Mejority Capital? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.