How Does QV Equities Limited (ASX:QVE)’s Prospect Stack Up Next To Its Financial Peers?

QV Equities Limited (ASX:QVE), a AUDA$356.22M small-cap, operates in the capital markets industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Many banks and capital markets firms, particularly the large, complex institutions, have been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, a somewhat weaker growth of 6.82% in the upcoming year , and an enormous growth of 41.90% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Is the capital markets industry an attractive sector-play right now? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether QV Equities is lagging or leading its competitors in the industry. See our latest analysis for QV Equities

What’s the catalyst for QV Equities'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. In the previous year, the industry saw growth of 3.16%, though still underperforming the wider Australian stock market. QV Equities leads the pack with its impressive earnings growth of 30.62% over the past year. This proven growth may make QV Equities a more expensive stock relative to its peers.

Is QV Equities and the sector relatively cheap?

The capital markets industry is trading at a PE ratio of 22x, in-line with the Australian stock market PE of 18x. 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 8.68% compared to the market’s 11.86%, potentially indicative of past headwinds. On the stock-level, QV Equities is trading at a higher PE ratio of 36x, making it more expensive than the average capital markets stock. In terms of returns, QV Equities generated 3.05% in the past year, which is 6% below the capital markets sector.

What this means for you:

Are you a shareholder? QV Equities recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. However, this higher growth is also reflected in QV Equities’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto QV Equities as part of your portfolio. However, if you’re relatively concentrated in capital markets the QV Equities’s high PE may signal the right time to sell.

Are you a potential investor? If QV Equities has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other capital markets companies. However, that being said, its industry-beating growth delivered may be the reason for high relative valuation. I suggest you look at QV Equities’s future cash flows in order to assess whether the stock is trading at a reasonable price on this basis.

For a deeper dive into QV Equities'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 financial stocks instead? Use our free playform to see my list of over 600 other financial companies trading on the market.

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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.