Class Limited (ASX:CL1), is a AU$248.27m small-cap, which operates in the software industry based in Australia. As various enterprises look to technology to enable their own transformations, the opportunities for technology companies have widened extensively. Tech analysts are forecasting for the entire software tech industry, a strong double-digit growth of 20.81% in the upcoming year , and a massive growth of 59.24% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Today, I’ll take you through the tech sector growth expectations, as well as evaluate whether Class is lagging or leading in the industry.
View our latest analysis for Class
What’s the catalyst for Class’s sector growth?
Many technologies are now coming into their own as their power and speed increase and the cost of delivering them goes down. In the previous year, the industry saw growth in the teens, beating the Australian market growth of 9.86%. Class leads the pack with its impressive earnings growth of 31.12% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 9.44% compared to the wider software sector growth hovering in the twenties next year. As a future industry laggard in growth, Class may be a cheaper stock relative to its peers.
Is Class and the sector relatively cheap?
The software tech sector’s PE is currently hovering around 30.72x, above the broader Australian stock market PE of 17.91x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 20.98% compared to the market’s 11.84%, which may be indicative of past tailwinds. On the stock-level, Class is trading at a PE ratio of 27.34x, which is relatively in-line with the average software stock. In terms of returns, Class generated 33.59% in the past year, which is 12.61% over the software sector.
Next Steps:
If Class has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is an tech industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the tech sector. However, before you make a decision on the stock, I suggest you look at Class’s fundamentals in order to build a holistic investment thesis.
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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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Historical Track Record: What has CL1’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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Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Class? 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.