engage:BDR Limited (ASX:EN1), is a AUDA$42.45M small-cap, which operates in the software industry based in Australia. The sector has significantly been impacted by technology megatrends that will continue to shape the industry, which have changed how both industrial and consumer-oriented companies operate. For example, cloud computing has been swiftly adopted by many enterprises, and the Internet of Things have permeated throughout various industries. Tech analysts are forecasting for the entire software tech industry, an extremely robust growth of 45.26% in the upcoming year , and a massive growth of 94.70% 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. An interesting question to explore is whether we can we benefit from entering into the tech sector right now. Below, I will examine the sector growth prospects, and also determine whether engage:BDR is a laggard or leader relative to its tech sector peers. View our latest analysis for engage:BDR
What’s the catalyst for engage:BDR’s sector growth?
US-based mega-competitors have been, and continue to be, the key drivers of industry growth. Many tech companies are repositioning themselves by focusing on high-growth areas such as IBM’s artificial intelligence play in Watson and Adobe’s shift to marketing its product for cloud computing. In the previous year, the industry endured negative growth of -0.10%, underperforming the Australian market growth of 6.90%. Given the lack of analyst consensus in engage:BDR’s outlook, we could potentially assume the stock’s growth rate broadly follows its software industry peers. This means it is an attractive growth stock relative to the wider Australian stock market.
Is engage:BDR and the sector relatively cheap?
The software tech industry is trading at a PE ratio of 35x, higher than the rest of the Australian stock market PE of 18x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 14.32% compared to the market’s 11.86%, which may be indicative of past tailwinds. Since engage:BDR’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge engage:BDR’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? tech 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. However, the sector is also relatively more expensive, which may be reflective of this high growth expectation. If you’re currently concentrated in tech, it may be worth revisiting your investment thesis for each stock.
Are you a potential investor? If you’ve been keeping an eye on the tech sector, you may have just missed the boat on high growth potential as the market seems to have well and truly priced it into these stocks. The sector is relatively more expensive than the rest of the market which makes it less attractive to enter into companies like engage:BDR right now.
For a deeper dive into engage:BDR’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 tech stocks instead? Use our free playform to see my list of over 1000 other tech companies trading on the market.