Austock Group Limited (ASX:ACK), a AUDA$160.66M small-cap, operates in the insurance industry, which is a large constituent of the economy by virtue of the amount of premiums it collects and the role it plays by covering personal and business risks. Financial services analysts are forecasting for the entire industry, a somewhat weaker growth of 1.61% in the upcoming year , and a robust short-term growth of 19.53% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Austock Group is lagging or leading in the industry. Check out our latest analysis for Austock Group
What’s the catalyst for Austock Group’s sector growth?
Amid challenges from regulatory disruption, increasing consumer expectations and sluggish sales, insurers will increasingly consider technology integration to drive growth and efficiency. In the past year, the industry delivered growth of 5.46%, though still underperforming the wider Australian stock market. Austock Group lags the pack with its negative growth rate of -90.72% over the past year, which indicates the company will be growing at a slower pace than its insurance peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of over 100% in the upcoming year.
Is Austock Group and the sector relatively cheap?
Insurance companies are typically trading at a PE of 23x, above the broader Australian stock market PE of 18x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 10.88% on equities compared to the market’s 11.91%. On the stock-level, Austock Group is trading at a higher PE ratio of 671x, making it more expensive than the average insurance stock. In terms of returns, Austock Group generated 2.03% in the past year, which is 9% below the insurance sector.
What this means for you:
Are you a shareholder? Austock Group’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in Austock Group’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Austock Group as part of your portfolio. However, if you’re relatively concentrated in insurance, the Austock Group’s high PE may signal the right time to sell.
Are you a potential investor? If Austock Group has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other insurance companies. However, that being said, its industry-beating growth prospects may be the reason for high relative valuation. I suggest you look at Austock Group’s future cash flows in order to assess whether the stock is trading at a reasonable price on this basis.