The GO2 People Limited (ASX:GO2), a AUDA$22.41M small-cap, is a professional services company operating in an industry, which generally follows the ups and downs of the economic cycle, as its services cater to various industries across different sectors. The sector also relies on the performance of general construction industries, financial and business service industries, and the mining sector as these generate a large proportion of the sector’s revenue. Professional services analysts are forecasting for the entire industry, an extremely robust growth of 69.58% 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 Australian stock market as a whole. Should your portfolio be overweight in the professional servicess sector at the moment? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether GO2 is lagging or leading its competitors in the industry. See our latest analysis for GO2
What’s the catalyst for GO2’s sector growth?
High market competition, predominantly from new entrants into the service industry, has led to a faster-changing business environment. Since revenues are generated primarily from project-work with clients from external companies, the lumpiness of revenues is driven by the activities of other sectors. In the past year, the industry delivered negative growth of -12.07%, underperforming the Australian market growth of 6.88%. Given the lack of analyst consensus in GO2’s outlook, we could potentially assume the stock’s growth rate broadly follows its professional services industry peers. This means it is an attractive growth stock relative to the wider Australian stock market.
Is GO2 and the sector relatively cheap?
Professional services companies are typically trading at a PE of 22x, in-line with the Australian stock market PE of 18x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 16.08% compared to the market’s 11.92%, potentially illustrative of past tailwinds. Since GO2’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge GO2’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Professional services stocks are currently expected to grow faster than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards high-growth. The industry is trading relatively in-line with the market, which means you may be paying a fair value for the services stocks should you wish to accumulate more of your holdings.
Are you a potential investor? If you’ve been keeping an eye on the professional services sector, now is the right time to dive deeper into the stock-level. The high growth prospect makes stocks such as GO2 a more appealing investment case, though the industry is trading relatively in-line with the rest of the wider marker. I suggest you examine the stock’s fundamentals, such as its financial health, before you make an investment decision.
For a deeper dive into GO2 People’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 service stocks instead? Use our free playform to see my list of over 100 other service companies trading on the market.