National Holdings Corporation (NASDAQ:NHLD), a USD$29.17M small-cap, operates in the capital markets industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Many banks and capital markets firms, particularly the large, complex institutions, have been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, a fairly unexciting growth rate of 8.70% in the upcoming year , and a robust short-term growth of 27.01% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Is the capital markets industry an attractive sector-play right now? Today, I will analyse the industry outlook, as well as evaluate whether NHLD is lagging or leading its competitors in the industry. View our latest analysis for National Holdings
What’s the catalyst for NHLD’s sector growth?
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered growth in the teens, beating the US market growth of 4.49%. Given the lack of analyst consensus in NHLD’s outlook, we could potentially assume the stock’s growth rate broadly follows its capital markets industry peers. This means it is an attractive growth stock relative to the wider US stock market.
Is NHLD and the sector relatively cheap?
Capital markets companies are typically trading at a PE of 19x, in-line with the US stock market PE of 22x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 11.19% on equities compared to the market’s 9.99%. On the stock-level, NHLD is trading at a lower PE ratio of 8x, making it cheaper than the average capital markets stock. In terms of returns, NHLD generated 8.98% in the past year, which is 2% below the capital markets sector.
What this means for you:
Are you a shareholder? Capital markets stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. If growth was one of your main investment catalyst in the sector, now would be the time to revisit your holdings in NHLD. Keep in mind the sector is trading relatively in-line with the rest of the market, which may mean you’ll be selling out at a reasonable price.
Are you a potential investor? The financial sector’s below-market growth and average valuation hardly makes it an exciting investment case. If you’re looking for a high-growth stock with potential mispricing, it seems like capital markets companies like NHLD isn’t the right place to look. However, if you’re interested in the stock for other reasons, I suggest you research more into the company’s cash flow as well as its financial health in order to gain a holistic view of the stock.
For a deeper dive into National 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.