Impax Asset Management Group plc (LON:IPX), a UK£308.73m 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 banks and capital markets firms, particularly the large, complex institutions, have been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, a relatively muted growth of 0.40% in the upcoming year , and a massive growth of 35.79% over the next couple of years. However this rate still came in below the growth rate of the UK stock market as a whole. Is the capital markets industry an attractive sector-play right now? Today, I will analyse the industry outlook, and also determine whether Impax Asset Management Group is a laggard or leader relative to its financial sector peers.
What’s the catalyst for Impax Asset Management Group'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 previous year, the industry saw growth in the thirties, beating the UK market growth of 17.27%. Impax Asset Management Group leads the pack with its impressive earnings growth of 82.92% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Impax Asset Management Group poised to deliver a 81.59% growth over the next couple of years compared to the industry's 0.40%. This growth is a median of profitable companies of 25 Capital Markets companies in GB including Mercia Technologies, Arix Bioscience and Share. This growth may make Impax Asset Management Group a more expensive stock relative to its peers.
Is Impax Asset Management Group and the sector relatively cheap?
The capital markets industry is trading at a PE ratio of 16.19x, relatively similar to the rest of the UK stock market PE of 16.96x. 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 13.53% on equities compared to the market’s 12.41%. On the stock-level, Impax Asset Management Group is trading at a higher PE ratio of 34.46x, making it more expensive than the average capital markets stock. In terms of returns, Impax Asset Management Group generated 20.22% in the past year, which is 6.69% over the capital markets sector.
Impax Asset Management Group’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 Impax Asset Management Group 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 capital markets companies. However, before you make a decision on the stock, I suggest you look at Impax Asset Management Group'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 IPX'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 Impax Asset Management 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!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.