National American University Holdings Inc (NASDAQ:NAUH), a USD$30.53M small-cap, is a consumer services company operating in an industry, whose performance is linked to business conditions and the general economy, as it draws revenue from industries across different sectors. Given activities are primarily project-based work with individual clients, the performance of the industry depends on the general sentiment of the wider economy. For example, individuals are more likely to spend money on superfluous services when they feel less need to save. Consumer services analysts are forecasting for the entire industry, a strong double-digit growth of 14.63% in the upcoming year , and a single-digit 4.87% growth over the next couple of years. This rate is below the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the consumer services sector right now. Today, I will analyse the industry outlook, as well as evaluate whether NAUH is lagging or leading its competitors in the industry. View our latest analysis for National American University Holdings
What’s the catalyst for NAUH’s sector growth?
A main driver of the industry has been the growing relevance of e-commerce for consumer services, enabling companies to reduce cost to serve while growing market presence at the same time. A crucial strategy for incumbents is to be well-positioned in response to the growing importance of pure e-commerce players, as well as building up their own capabilities around e-commerce. In the past year, the industry delivered growth in the teens, beating the US market growth of 4.49%. NAUH lags the pack with its negative growth rate of -33.18% over the past year, which indicates the company will be growing at a slower pace than its consumer services peers. As the company trails the rest of the industry in terms of growth, NAUH may also be a cheaper stock relative to its peers.
Is NAUH and the sector relatively cheap?
Consumer services companies are typically trading at a PE of 24x, in-line with the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 16.11% compared to the market’s 9.99%, potentially illustrative of past tailwinds. Since NAUH’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge NAUH’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? NAUH has been a consumer services industry laggard in the past year. If your initial investment thesis is around the growth prospects of NAUH, there are other consumer services companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how NAUH fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If NAUH 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 consumer services 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 NAUH’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into National American University Holdings’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other service stocks instead? Use our free playform to see my list of over 100 other service companies trading on the market.