Sprintex Limited (ASX:SIX), a AUDA$17.00M small-cap, is an automobile company operating in an industry whose long product cycles and deep capital investments make planning ahead a difficult endeavour. Upcoming challenges facing the sector is navigating the path from current automobile models to driverless cars, requiring high capital outlays in emerging technology. Shortcomings of well-established auto companies provides an opportunity for technology firms such as Alphabet and Apple to create their own software underlying autonomous and communication capabilities of automobiles. Automobile analysts are forecasting for the entire industry, a strong double-digit growth of 10.56% in the upcoming year, and an optimistic near-term growth of 16.35% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Is the automobile industry an attractive sector-play right now? In this article, I’ll take you through the automobile sector growth expectations, as well as evaluate whether SIX is lagging or leading its competitors in the industry. Check out our latest analysis for Sprintex
What’s the catalyst for SIX’s sector growth?
The increasing presence of tech firms in the auto industry cannot be overlooked or discounted by OEMs. In the next decade, software integration will likely have a significant impact on the auto industry, given the alignment of their expertise – they are proficient at seamlessly connecting components to create networks valued by consumers for the information, efficiencies, and experiences they deliver. In the past year, the industry delivered growth of 3.32%, beating the Australian market growth of -4.59%. SIX lags the pack with its negative growth rate of -7.13% over the past year, which indicates the company has been growing at a slower pace than its automobile peers. As the company trails the rest of the industry in terms of growth, SIX may also be a cheaper stock relative to its peers.
Is SIX and the sector relatively cheap?
The automobile industry is trading at a PE ratio of 15x, relatively similar to the rest of the Australian stock market PE of 16x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 19.28% compared to the market’s 11.92%, potentially illustrative of a turnaround. Since SIX’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge SIX’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? SIX has been an automobile industry laggard in the past year. If your initial investment thesis is around the growth prospects of SIX, there are other automobile companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how SIX fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If SIX 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 automobile 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 SIX’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Sprintex’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 automobile stocks instead? Use our free playform to see my list of over 50 other automobile companies trading on the market.