P Squared Renewables Inc (TSXV:PSQ.P), a CADCA$540.00K small-cap, is a utility company operating in an industry which faces recent trends of rising cybersecurity threats, increasing usage by consumers and growing number of innovative competitors. Utilities analysts are forecasting for the entire industry, a positive double-digit growth of 11.33% in the upcoming year , and a single-digit 2.35% growth over the next couple of years. This rate is larger than the growth rate of the Canadian stock market as a whole. Today, I will analyse the industry outlook, and also determine whether PSQ.P is a laggard or leader relative to its utilities sector peers. Check out our latest analysis for P Squared Renewables
What’s the catalyst for PSQ.P’s sector growth?
Aging asset performance with increased expectations on reliability, and new entrants and disruptive technology, are just some of the few key disruption in utilities. In the past year, the industry delivered negative growth of -67.49%, underperforming the Canadian market growth of 11.18%. Given the lack of analyst consensus in PSQ.P’s outlook, we could potentially assume the stock’s growth rate broadly follows its utilities industry peers. This means it is an attractive growth stock relative to the wider Canadian stock market.
Is PSQ.P and the sector relatively cheap?
The utilities industry is trading at a PE ratio of 14x, relatively similar to the rest of the Canadian stock market PE of 17x. 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 5.82% compared to the market’s 9.19%, potentially indicative of past headwinds. Since PSQ.P’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge PSQ.P’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Utilities sector 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. The industry is trading relatively in-line with the market, which means you may be paying a fair value for the utilities stocks should you wish to accumulate more of your holdings.
Are you a potential investor? If you’ve been keeping an eye on the utilities sector, now is the right time to dive deeper into the stock-level. The high growth prospect makes stocks such as PSQ.P a more appealing investment case, though the industry is trading relatively in-line with the rest of the wider marker. I suggest you examine the stock’s fundamentals, such as its financial health, before you make an investment decision.