xG Technology Inc (NASDAQ:XGTI), is a USD$22.26M small-cap, which operates in the tech hardware industry based in United States. The sector has significantly been impacted by technology megatrends that will continue to shape the industry, which have changed how both industrial and consumer-oriented companies operate. For example, cloud computing has been swiftly adopted by many enterprises, and the Internet of Things have permeated throughout various industries. Tech analysts are forecasting for the entire hardware tech industry, a relatively muted growth of 1.48% in the upcoming year , and a whopping growth of 30.06% over the next couple of years. However this rate still came in 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 tech sector right now. Below, I will examine the sector growth prospects, and also determine whether XGTI is a laggard or leader relative to its tech sector peers. See our latest analysis for XGTI
What’s the catalyst for XGTI’s sector growth?
US-based mega-competitors, such as Alphabet, Apple and Facebook, have been and appears to continue to be, the key drivers of industry growth. Many tech companies are repositioning themselves by focusing on high-growth areas such as IBM’s artificial intelligence play in Watson and Adobe’s shift to marketing its product for cloud computing. Over the past year, the industry saw growth in the teens, beating the US market growth of 10.30%. XGTI leads the pack with its impressive earnings growth of 99.47% over the past year. This proven growth may make XGTI a more expensive stock relative to its peers.
Is XGTI and the sector relatively cheap?
Tech hardware companies are typically trading at a PE of 25x, relatively similar to the rest of the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 9.46% on equities compared to the market’s 10.06%. Since XGTI’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge XGTI’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? XGTI recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto XGTI as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value XGTI based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If XGTI has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the tech industry. However, before you make a decision on the stock, I suggest you look at XGTI’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 xG Technology’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.