Cirralto Limited (ASX:CRO), is a AUDA$18.94M small-cap, which operates in the IT services industry based in Australia. Technology has become a vital component of every industry, bringing unprecedented opportunities for growth, along with challenges and competition. However, more specifically in the IT service industry, tech analysts are forecasting a strong double-digit growth of 26.77% in the upcoming year , and a whopping growth of 51.08% 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, and also determine whether CRO is a laggard or leader relative to its tech sector peers. See our latest analysis for CRO
What’s the catalyst for CRO’s sector growth?
Despite all the opportunities, tech companies still face a host of challenges, including coping with an increasingly burdensome global regulation. Since the regulatory environment is unlikely to become less complex, organizations will need to address the constantly evolving rules for governing privacy, security and handling of data, as well as cybersecurity issues. In the previous year, the industry saw growth in the teens, beating the Australian market growth of 6.89%. Given the lack of analyst consensus in CRO’s outlook, we could potentially assume the stock’s growth rate broadly follows its IT services industry peers. This means it is an attractive growth stock relative to the wider Australian stock market.
Is CRO and the sector relatively cheap?
The IT services sector’s PE is currently hovering around 25x, above the broader Australian stock market PE of 17x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 14.20% compared to the market’s 11.92%, which may be indicative of past tailwinds. Since CRO’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CRO’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? tech stocks are currently expected to grow faster than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards high-growth. However, the sector is also relatively more expensive, which may be reflective of this high growth expectation. If you’re currently concentrated in tech, it may be worth revisiting your investment thesis for each stock.
Are you a potential investor? If you’ve been keeping an eye on the tech sector, you may have just missed the boat on high growth potential as the market seems to have well and truly priced it into these stocks. The sector is relatively more expensive than the rest of the market which makes it less attractive to enter into companies like CRO right now.