AMP Limited (ASX:AMP), a AU$14.63B large-cap, operates in the financial services industry, which tends to draw the more conservative investors who attracted by their steady revenue, the protection against volatility, and the above-average dividend yields. Though, in light of recent poor governance of these companies, such as those involved in risky derivative products, the operating risk has increased immensely. Financial services analysts are forecasting for the entire industry, a fairly unexciting growth rate of 3.95% in the upcoming year , and a strong near-term growth of 22.80% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Is the diversified financial services industry an attractive sector-play right now? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether AMP is lagging or leading its competitors in the industry. Check out our latest analysis for AMP
What’s the catalyst for AMP’s sector growth?
Recently, government and overseas regulators involvement has increased to play a prominent role, closely examining and controlling day-to-day business administration of certain companies. In the past year, the industry delivered negative growth of -0.036%, underperforming the Australian market growth of 6.78%. AMP leads the pack with its impressive industry-beating growth rate of 6.80% in the upcoming year. This optimistic future outlook may make AMP a more expensive stock relative to its peers.
Is AMP and the sector relatively cheap?
Financial services companies are typically trading at a PE of 19.69x, in-line with the Australian stock market PE of 16.97x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 7.64% compared to the market’s 11.52%, potentially indicative of past headwinds. On the stock-level, AMP is trading at a PE ratio of 17.31x, which is relatively in-line with the average diversified financial services stock. In terms of returns, AMP generated 11.99% in the past year, which is 4.34% over the diversified financial services sector.
Next Steps:AMP’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If AMP has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at AMP’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 AMP’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 AMP? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!