Smart Marine Systems Limited (ASX:SM8), is a AUDA$2.07M small-cap, which operates in the tech hardware industry based in Australia. Technology has become a vital component of every industry, bringing unprecedented opportunities for growth, along with challenges and competition from traditional and emerging areas. Innovations such as augmented and virtual reality, blockchain, machine learning and autonomous vehicles are paving the way for tech sector growth and branching out into new applications. Tech analysts are forecasting for the entire hardware tech industry, a strong double-digit growth of 15.31% in the upcoming year . Should your portfolio be overweight in the tech sector at the moment? Today, I will analyse the industry outlook, as well as evaluate whether Smart Marine Systems is lagging or leading its competitors in the industry. See our latest analysis for Smart Marine Systems
What’s the catalyst for Smart Marine Systems’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 past year, the industry delivered growth in the teens, beating the Australian market growth of 6.93%. Smart Marine Systems lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Smart Marine Systems may be trading cheaper than its peers.
Is Smart Marine Systems and the sector relatively cheap?
Tech hardware companies are typically trading at a PE of 22x, in-line with the Australian stock market PE of 18x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.95% on equities compared to the market’s 11.86%. Since Smart Marine Systems’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Smart Marine Systems’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Smart Marine Systems has been a tech industry laggard in the past year. If your initial investment thesis is around the growth prospects of Smart Marine Systems, there are other tech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Smart Marine Systems fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Smart Marine Systems has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its tech peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Smart Marine Systems’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Smart Marine Systems’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.