Have Investors Priced In Service Growth For GYG plc (LON:GYG)?

Simply Wall St
March 21, 2018

GYG plc (AIM:GYG), a UK£58.07M small-cap, operates in the commercial services industry, whose performance is linked to business conditions and the general economy, as it draws revenue from industries across different sectors. Companies in the industry are faced with building their strategies around the evolving conditions and the potential for further consolidation by focusing resources on increasing market share by growing channels. Commercial services analysts are forecasting for the entire industry, a strong double-digit growth of 23.16% in the upcoming year , and a robust short-term growth of 10.29% over the next couple of years. However, this rate came in below the growth rate of the UK stock market as a whole. Is the commercial services industry an attractive sector-play right now? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether GYG is lagging or leading its competitors in the industry. See our latest analysis for GYG

What’s the catalyst for GYG's sector growth?

AIM:GYG Past Future Earnings Mar 21st 18
AIM:GYG Past Future Earnings Mar 21st 18
A main driver of the industry has been the growing relevance of e-commerce for commercial services, enabling companies to reduce cost to serve while growing market presence at the same time. A crucial strategy for incumbents is to be well-positioned in response to the growing importance of stockless independent dealers, as well as building up their own capabilities around e-commerce. In the previous year, the industry saw growth of 7.38%, though still underperforming the wider UK stock market. GYG lags the pack with its negative growth rate of -97.27% over the past year, which indicates the company will be growing at a slower pace than its commercial services peers. As the company trails the rest of the industry in terms of growth, GYG may also be a cheaper stock relative to its peers.

Is GYG and the sector relatively cheap?

AIM:GYG PE PEG Gauge Mar 21st 18
AIM:GYG PE PEG Gauge Mar 21st 18
The commercial services industry is trading at a PE ratio of 19.57x, relatively similar to the rest of the UK stock market PE of 16.44x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 12.28% on equities compared to the market’s 12.23%. On the stock-level, GYG is trading at a higher PE ratio of 101x, making it more expensive than the average commercial services stock. In terms of returns, GYG generated 2.81% in the past year, which is 9.47% below the commercial services sector.

Next Steps:

GYG has been a commercial services 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 GYG 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 services sector. However, before you make a decision on the stock, I suggest you look at GYG'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 GYG'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 GYG? 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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