Advanced Braking Technology Limited (ASX:ABV), a A$13.34M small-cap, is an automobile company operating in an industry which is a major consumer of key commodities such as copper and steel, making the car manufacturers and suppliers significant players in the global economy. New opportunities driving future growth in the auto sector is connected and intelligent cars, in particular, web networking, sensors and software, which is not the traditional focus for most automobile companies. The limitation of automobile incumbents is an opportunity for tech giants such as Apple and Google to develop their own software components behind networking, autonomous and communication capabilities of automobiles. Automobile analysts are forecasting for the entire industry, a positive double-digit growth of 14.03% in the upcoming year . Should your portfolio be overweight in the automobile sector at the moment? Today, I will analyse the industry outlook, and also determine whether Advanced Braking Technology is a laggard or leader relative to its automobile sector peers. See our latest analysis for Advanced Braking Technology
What’s the catalyst for Advanced Braking Technology’s sector growth?
The increasing presence of tech firms in the auto industry cannot be overlooked or discounted by OEMs. These companies will likely prove to have an immense influence on the auto sector in the coming years, mainly because their skills and the industry’s needs align perfectly – they are adept to connecting value-add components to created networks for information, efficiencies and experiences. In the past year, the industry delivered growth of 3.32%, though still underperforming the wider Australian stock market. Advanced Braking Technology lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Advanced Braking Technology may be trading cheaper than its peers.
Is Advanced Braking Technology and the sector relatively cheap?
The automobile industry is trading at a PE ratio of 24.1x, above the broader Australian stock market PE of 18.1x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 14.00% compared to the market’s 11.86%, potentially illustrative of a turnaround. Since Advanced Braking Technology’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Advanced Braking Technology’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Advanced Braking Technology recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the automobile industry. However, before you make a decision on the stock, I suggest you look at Advanced Braking Technology’s fundamentals in order to build a holistic investment thesis.
- 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- 2. Historical Track Record: What has ABV’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Advanced Braking Technology? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!