Pavillon Holdings Ltd (SGX:596), a SGD$18.61M small-cap, operates in the consumer discretionary industry, whose performance is predominantly driven by consumer confidence. Macro elements tend to determine how fast, and how often, consumers buy leisure products. Consumer discretionary analysts are forecasting for the entire industry, a positive double-digit growth of 13.11% in the upcoming year . Below, I will examine the sector growth prospects, as well as evaluate whether Pavillon Holdings is lagging or leading in the industry. See our latest analysis for Pavillon Holdings
What’s the catalyst for Pavillon Holdings’s sector growth?
Although there is higher competition for consumer leisure time, due to the rise of new activities such as online streaming and mobile games, the whole industry has been expanding in various channels to better interact with its consumer. Traditional incumbents are forced to adapt or fall behind. In the previous year, the industry saw growth of 9.90%, beating the Singapore market growth of 7.92%. Pavillon Holdings lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its leisure peers. As the company trails the rest of the industry in terms of growth, Pavillon Holdings may also be a cheaper stock relative to its peers.
Is Pavillon Holdings and the sector relatively cheap?
The leisure industry is trading at a PE ratio of 25x, higher than the rest of the Singapore stock market PE of 14x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 5.52% compared to the market’s 7.94%, which may be indicative of past headwinds. Since Pavillon Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Pavillon Holdings’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Pavillon Holdings has been a leisure industry laggard in the past year. If your initial investment thesis is around the growth prospects of Pavillon Holdings, there are other leisure companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Pavillon Holdings fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Pavillon Holdings has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its leisure peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Pavillon Holdings’s future cash flows in order to assess whether the stock is trading at a reasonable price.