Soup Restaurant Group Limited (SGX:5KI), a SGD$43.14M small-cap, is a consumer discretionary company operating in an industry, whose sales are driven primarily by consumer sentiment and access to capital. These macro factors tend to determine the rate at which consumers purchase 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, and also determine whether Soup Restaurant Group is a laggard or leader relative to its consumer discretionary sector peers. Check out our latest analysis for Soup Restaurant Group
What’s the catalyst for Soup Restaurant Group’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%. Soup Restaurant Group leads the pack with its impressive earnings growth of 22.44% over the past year. This proven growth may make Soup Restaurant Group a more expensive stock relative to its peers.
Is Soup Restaurant Group and the sector relatively cheap?
The leisure sector’s PE is currently hovering around 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. On the stock-level, Soup Restaurant Group is trading at a higher PE ratio of 31x, making it more expensive than the average leisure stock. In terms of returns, Soup Restaurant Group generated 14.97% in the past year, which is 9.45% over the leisure sector.
What this means for you:
Are you a shareholder? Soup Restaurant Group recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. However, this higher growth is also reflected in Soup Restaurant 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 Soup Restaurant Group as part of your portfolio. However, if you’re relatively concentrated in leisure the Soup Restaurant Group’s high PE may signal the right time to sell.