Sprintex Limited (ASX:SIX), a AU$14.00M small-cap, is an automobile company operating in an industry whose long product cycles and deep capital investments make planning ahead a difficult endeavour. 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. Shortcomings of well-established auto companies provides an opportunity for technology firms such as Alphabet and Apple to create their own software underlying autonomous and communication capabilities of automobiles. Automobile analysts are forecasting for the entire industry, a positive double-digit growth of 14.98% in the upcoming year . Is the automobile industry an attractive sector-play right now? Below, I will examine the sector growth prospects, and also determine whether Sprintex is a laggard or leader relative to its automobile sector peers. Check out our latest analysis for Sprintex
What’s the catalyst for Sprintex’s sector growth?
The increasing presence of tech firms in the auto industry cannot be overlooked or discounted by OEMs. In the next decade, software integration will likely have a significant impact on the auto industry, given the alignment of their expertise – 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. Sprintex 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 Sprintex may be trading cheaper than its peers.
Is Sprintex and the sector relatively cheap?
The automobile sector’s PE is currently hovering around 23.39x, higher than the rest of the Australian stock market PE of 17.16x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 13.67% on equities compared to the market’s 11.83%, potentially illustrative of a turnaround. Since Sprintex’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Sprintex’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Sprintex has been an automobile industry laggard in the past year. If Sprintex has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its automobile peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Sprintex’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 SIX’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 Sprintex? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!