Yellow Brick Road Holdings Limited (ASX:YBR), a AUDA$42.32M small-cap, is a financial services company operating in an industry, which tends to draw the more conservative investors who attracted by their steady revenue, the protection against volatility, and the above-average dividend yields. Though, in light of recent poor governance of these companies, such as those involved in risky derivative products, the operating risk has increased immensely. Financial services analysts are forecasting for the entire industry, a strong double-digit growth of 24.70% in the upcoming year , and a massive growth of 71.80% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Australian stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the diversified financial services sector right now. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether YBR is lagging or leading its competitors in the industry. Check out our latest analysis for Yellow Brick Road Holdings
What’s the catalyst for YBR’s sector growth?
Recently, government and overseas regulators involvement has increased to play a prominent role, closely examining and controlling day-to-day business administration of certain companies. In the previous year, the industry endured negative growth of -7.83%, underperforming the Australian market growth of 5.37%. Given the lack of analyst consensus in YBR’s outlook, we could potentially assume the stock’s growth rate broadly follows its diversified financial services industry peers. This means it is an attractive growth stock relative to the wider Australian stock market.
Is YBR and the sector relatively cheap?
Financial services companies are typically trading at a PE of 18x, in-line with the Australian 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 9.44% compared to the market’s 11.92%, potentially indicative of past headwinds. On the stock-level, YBR is trading at a higher PE ratio of 34x, making it more expensive than the average diversified financial services stock. In terms of returns, YBR generated 1.72% in the past year, which is 8% below the diversified financial services sector.
What this means for you:
Are you a shareholder? Financial services 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 financials stocks should you wish to accumulate more of your holdings.
Are you a potential investor? If you’ve been keeping an eye on the financial services sector, now is the right time to dive deeper into the stock-level. The high growth prospect makes stocks such as YBR 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.
For a deeper dive into Yellow Brick Road 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 financial stocks instead? Use our free playform to see my list of over 600 other financial companies trading on the market.