MGM Wireless Limited (ASX:MWR), is a AUDA$4.00M small-cap, which operates in the software industry based in Australia. Technology has become a vital component of every industry, bringing unprecedented opportunities for growth, along with challenges and competition from traditional and emerging areas. Innovations such as augmented and virtual reality, blockchain, machine learning and autonomous vehicles are paving the way for tech sector growth and branching out into new applications. Tech analysts are forecasting for the entire software tech industry, an extremely robust growth of 32.30% in the upcoming year , and a massive growth of 94.94% 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. Is the tech industry an attractive sector-play right now? Below, I will examine the sector growth prospects, and also determine whether MWR is a laggard or leader relative to its tech sector peers. View our latest analysis for MGM Wireless
What’s the catalyst for MWR’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 negative growth of -1.93%, underperforming the Australian market growth of 5.37%. MWR 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. As the company trails the rest of the industry in terms of growth, MWR may also be a cheaper stock relative to its peers.
Is MWR and the sector relatively cheap?
The software tech sector’s PE is currently hovering around 30x, above the broader Australian stock market PE of 17x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 12.23% on equities compared to the market’s 11.92%. Since MWR’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MWR’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? MWR has been a tech industry laggard in the past year. If your initial investment thesis is around the growth prospects of MWR, there are other tech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how MWR fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If MWR 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 tech 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 MWR’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into MGM Wireless’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.