A Look At NAOS Absolute Opportunities Company Limited (ASX:NAC) And The Financial Sector

NAOS Absolute Opportunities Company Limited (ASX:NAC), a A$55.69M small-cap, operates in the capital markets industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Many aspects of banking and capital markets are being attacked by new competitors, whose key advantage is a leaner and technology-enabled operating model, allowing them to scale at a faster rate and meet changing consumer needs. Financial services analysts are forecasting for the entire industry, a relatively muted growth of 7.56% in the upcoming year , and an enormous growth of 41.61% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Is now the right time to pick up some shares in capital markets companies? Today, I will analyse the industry outlook, as well as evaluate whether NAOS Absolute Opportunities is lagging or leading its competitors in the industry. View our latest analysis for NAOS Absolute Opportunities

What’s the catalyst for NAOS Absolute Opportunities's sector growth?

The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw growth of 6.89%, though still underperforming the wider Australian stock market. NAOS Absolute Opportunities lags the pack with its negative growth rate of -85.05% over the past year, which indicates the company will be growing at a slower pace than its capital markets peers. As the company trails the rest of the industry in terms of growth, NAOS Absolute Opportunities may also be a cheaper stock relative to its peers.

Is NAOS Absolute Opportunities and the sector relatively cheap?

Capital markets companies are typically trading at a PE of 23.4x, higher than the rest of the Australian stock market PE of 17.9x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 8.62% compared to the market’s 11.86%, which may be indicative of past headwinds. On the stock-level, NAOS Absolute Opportunities is trading at a higher PE ratio of 41x, making it more expensive than the average capital markets stock. In terms of returns, NAOS Absolute Opportunities generated 2.45% in the past year, which is 6% below the capital markets sector.

Next Steps:

NAOS Absolute Opportunities has been a capital markets industry laggard in the past year. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis. If NAOS Absolute Opportunities has been on your watchlist for a while, now may be the best time to enter into the stock. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the financial sector. However, before you make a decision on the stock, I suggest you look at NAOS Absolute Opportunities'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 NAC'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 NAOS Absolute Opportunities? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.