SITO Mobile Ltd (NASDAQ:SITO), is a USD$169.61M small-cap, which operates in the software industry based in United States. In the past decade, the mega-tech companies, such as Amazon and Microsoft, have built highly successful and ubiquitous platforms and ecosystem in which smaller companies gravitate towards. Other hardware and software tech service firms, including many that dominated before 2000, are struggling to compete, and are going through significant restructuring in order to move away from their legacy systems. Tech analysts are forecasting for the entire software tech industry, a positive double-digit growth of 13.84% in the upcoming year , and an enormous growth of 55.17% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Should your portfolio be overweight in the tech sector at the moment? Below, I will examine the sector growth prospects, and also determine whether SITO is a laggard or leader relative to its tech sector peers. Check out our latest analysis for SITO Mobile
What’s the catalyst for SITO’s sector growth?
Despite all the opportunities, tech companies still face a host of challenges, including coping with an increasingly burdensome global regulation. Since the regulatory environment is unlikely to become less complex, organizations will need to address the constantly evolving rules for governing privacy, security and handling of data, as well as cybersecurity issues. Over the past year, the industry saw growth in the teens, beating the US market growth of 10.30%. SITO lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its software peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 73.25% in the upcoming year. This future growth may make SITO a more expensive stock relative to its peers.
Is SITO and the sector relatively cheap?
The software tech sector’s PE is currently hovering around 43x, above the broader US stock market PE of 22x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 12.86% compared to the market’s 10.06%, which may be indicative of past tailwinds. Since SITO’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge SITO’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? SITO’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto SITO as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value SITO based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If SITO has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the tech industry. However, before you make a decision on the stock, I suggest you look at SITO’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into SITO Mobile’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 tech stocks instead? Use our free playform to see my list of over 1000 other tech companies trading on the market.