Superloop Limited (ASX:SLC), a AU$536.94M small-cap, is a telco company operating in an industry which has experienced slower top-line growth in the past decade. However, the usage of telco services has been growing at a rapid rate, enabling telco companies to maintain their price by offering more differentiated services. Technological changes such as improvements in software and network efficiencies are the key driver to meet these changing consumer needs. Telco analysts are forecasting for the entire industry, a somewhat weaker growth of 0.47% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Australian stock market as a whole. Is now the right time to pick up some shares in telco companies? Today, I will analyse the industry outlook, as well as evaluate whether Superloop is lagging or leading its competitors in the industry. View our latest analysis for Superloop
What’s the catalyst for Superloop’s sector growth?
Innovations and technological developments allow telco companies to be more cost-competitive. However, this has become a necessity given that the overall growth in the sector is stagnating, and often the only way to maintain profitability is through cost-cutting. In the past year, the industry delivered growth of 5.64%, though still underperforming the wider Australian stock market. Superloop leads the pack with its impressive industry-beating growth rate of of over 100% in the upcoming year. This optimistic future outlook may make Superloop a more expensive stock relative to its peers.
Is Superloop and the sector relatively cheap?
The telco sector’s PE is currently hovering around 21.09x, relatively similar to the rest of the Australian stock market PE of 17.17x. 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 higher 16.50% compared to the market’s 11.75%, potentially illustrative of a turnaround. On the stock-level, Superloop is trading at a higher PE ratio of 199x, making it more expensive than the average telco stock. In terms of returns, Superloop generated 0.67% in the past year, which is 15.84% below the telco sector.
Next Steps:Superloop’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If Superloop 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 telco companies. However, before you make a decision on the stock, I suggest you look at Superloop’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 SLC’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 Superloop? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!