All Asia Asset Capital Limited (AIM:AAA), a GBP£8.51M small-cap, is a capital market firm operating in an industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Many aspects of banking and capital markets are being attacked by new competitors, whose key advantage is a leaner and technology-enabled operating model, allowing them to scale at a faster rate and meet changing consumer needs. Financial services analysts are forecasting for the entire industry, negative growth 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 UK stock market as a whole. Is the capital markets industry an attractive sector-play right now? In this article, I’ll take you through the sector growth expectations, and also determine whether All Asia Asset Capital is a laggard or leader relative to its financial sector peers. View our latest analysis for All Asia Asset Capital
What’s the catalyst for All Asia Asset Capital's sector growth?
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered growth in the twenties, beating the UK market growth of 11.51%. All Asia Asset Capital 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 All Asia Asset Capital may be trading cheaper than its peers.
Is All Asia Asset Capital and the sector relatively cheap?
Capital markets companies are typically trading at a PE of 17x, in-line with the UK stock market PE of 18x. 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 13.24% on equities compared to the market’s 12.77%. Since All Asia Asset Capital’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge All Asia Asset Capital’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? All Asia Asset Capital has been a capital markets industry laggard in the past year. If your initial investment thesis is around the growth prospects of All Asia Asset Capital, there are other capital markets companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how All Asia Asset Capital fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If All Asia Asset Capital 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 capital markets 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 All Asia Asset Capital’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into All Asia Asset Capital'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 financial stocks instead? Use our free playform to see my list of over 600 other financial companies trading on the market.