Nanoco Group plc (LSE:NANO), is a GBP£67.91M small-cap, which operates in the tech hardware industry based in United Kingdom. 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 hardware tech industry, a positive double-digit growth of 12.54% in the upcoming year , and an enormous triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK stock market as a whole. Is the tech industry an attractive sector-play right now? Today, I will analyse the industry outlook, and also determine whether NANO is a laggard or leader relative to its tech sector peers. View our latest analysis for Nanoco Group
What’s the catalyst for NANO’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. In the past year, the industry delivered negative growth of -3.68%, underperforming the UK market growth of 11.30%. NANO leads the pack with its impressive earnings growth of 5.01% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with NANO poised to deliver a 17.50% growth over the next couple of years. This growth may make NANO a more expensive stock relative to its peers.
Is NANO and the sector relatively cheap?
The tech hardware industry is trading at a PE ratio of 25x, above the broader UK stock market PE of 19x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 12.84% on equities compared to the market’s 12.78%. Since NANO’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge NANO’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? NANO’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 NANO as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value NANO based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If NANO 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 NANO’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 Nanoco Group’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.