Nasstar plc (AIM:NASA), is a GBP£58.14M small-cap, which operates in the software industry based in United Kingdom. The line between hardware and software companies has blurred, with many businesses shifting from pure-hardware to software-defined hardware and from products to services and solutions. As enterprises in various industry sector look to technology to enable their own transformations, the opportunities for technology companies have widened extensively. Tech analysts are forecasting for the entire software tech, industry, a strong double-digit growth of 13.67% in the upcoming year, and an enormous growth of 33.95% 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 now the right time to pick up some shares in tech companies? Today, I will analyse the industry outlook, as well as evaluate whether NASA is lagging or leading its competitors in the industry. Check out our latest analysis for Nasstar
What’s the catalyst for NASA’s sector growth?
The battle for competitive advantage has led businesses to adopt new the cutting-edge technology, or risk being left behind. Many technologies are now coming into their own as their power and speed increase and the cost of delivering them goes down. And some are pursing growth through various strategies including new M&A, collaboration and alliances, as well as cost reduction and organic growth. In the previous year, the industry saw growth in the teens, beating the UK market growth of 1.54%. NASA 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. However, the future seems brighter, as analysts expect an industry-beating growth rate of 27.06% in the upcoming year. This future growth may make NASA a more expensive stock relative to its peers.
Is NASA and the sector relatively cheap?
The software tech industry is trading at a PE ratio of 29x, higher than the rest of the UK stock market PE of 18x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 17.55% compared to the market’s 12.78%, which may be indicative of past tailwinds. Since NASA’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge NASA’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? NASA’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 NASA as part of your portfolio. However, if you’re relatively concentrated in tech, you may want to value NASA based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If NASA 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 NASA’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 Nasstar’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.