Retail Food Group Limited (ASX:RFG), a AU$190.06M small-cap, is a consumer discretionary company operating in an industry, whose performance is predominantly driven by consumer confidence, which is linked to employment and wage rates. Purchasing power is also a factor of interest rates and lending standards by financial institutions. These macro elements determine how fast, and how often, consumers buy leisure products. The leisure service sector is also undergoing significant structural shifts resulting from technology applications. Leisure companies are able to engage with its customers faster and easier through online and mobile channels, which has been a positive driver for the industry. Consumer discretionary analysts are forecasting for the entire industry, an extremely elevated growth of 31.31% in the upcoming year , and a whopping growth of 71.47% 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. Is now the right time to pick up some shares in leisure companies? Below, I will examine the sector growth prospects, and also determine whether Retail Food Group is a laggard or leader relative to its consumer discretionary sector peers. Check out our latest analysis for Retail Food Group
What’s the catalyst for Retail Food Group’s sector growth?
Although there is higher competition for consumer leisure time, due to the rise of new activities such as online streaming and mobile games, the whole industry has been expanding in various channels to better interact with its consumer. Traditional incumbents are forced to adapt or fall behind. In the previous year, the industry endured negative growth of -1.95%, underperforming the Australian market growth of 6.89%. Retail Food Group 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 leisure peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 86.58% in the upcoming year. This future growth may make Retail Food Group a more expensive stock relative to its peers.
Is Retail Food Group and the sector relatively cheap?
The leisure sector’s PE is currently hovering around 26.63x, higher than the rest of the Australian stock market PE of 16.97x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 14.58% compared to the market’s 11.52%, which may be indicative of past tailwinds. Since Retail Food Group’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Retail Food Group’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Retail Food Group’s industry-beating future is a positive for investors. If Retail Food Group 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 leisure industry. However, before you make a decision on the stock, I suggest you look at Retail Food Group’s fundamentals in order to build a holistic investment thesis.
- 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.
- Historical Track Record: What has RFG’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.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Retail Food Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!