Is Nakama Group plc (LON:NAK) A Good Service Bet?

Nakama Group plc (AIM:NAK), a UK£1.85M small-cap, operates in the professional services industry, whose performance is linked to business conditions and the general economy, as it draws revenue from industries across different sectors. The sector also relies on the performance of general construction industries, financial and business service industries, and the mining sector as these generate a large proportion of the sector’s revenue. Professional services analysts are forecasting for the entire industry, a fairly unexciting growth rate of 7.22% in the upcoming year , and a strong near-term growth of 24.92% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. Is now the right time to pick up some shares in professional services companies? Today, I will analyse the industry outlook, as well as evaluate whether Nakama Group is lagging or leading its competitors in the industry. See our latest analysis for Nakama Group

What’s the catalyst for Nakama Group's sector growth?

High market competition, predominantly from new entrants into the service industry, has led to a faster-changing business environment. Given activities are primarily project-based, the performance of the industry depends on the activities of other sectors. Over the past year, the industry saw growth of 3.78%, though still underperforming the wider UK stock market. Nakama Group 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 Nakama Group may be trading cheaper than its peers.

Is Nakama Group and the sector relatively cheap?

Professional services companies are typically trading at a PE of 17.33x, relatively similar to the rest of the UK stock market PE of 17.26x. 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 14.72% on equities compared to the market’s 12.78%. Since Nakama Group’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Nakama Group’s value is to assume the stock should be relatively in-line with its industry.

Next Steps:

Nakama Group has been a professional services industry laggard in the past year. If Nakama Group has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its services peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Nakama Group'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 NAK'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 Nakama Group? 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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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.