Should You Invest In The Tech Stock PCI-PAL PLC (LON:PCIP)?

PCI-PAL PLC (AIM:PCIP), is a UK£22.13M small-cap, which operates in the IT services industry based in United Kingdom. The line between hardware and software companies has blurred, with many businesses shifting from pure-hardware to software-defined hardware and from products to services and solutions. As enterprises in various industry sector look to technology to enable their own transformations, the opportunities for technology companies have widened extensively. However, more specifically in the IT service industry, tech analysts are forecasting a positive double-digit growth of 18.26% in the upcoming year , and an optimistic near-term growth of 17.99% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the tech sector right now. Today, I will analyse the industry outlook, and also determine whether PCI-PAL is a laggard or leader relative to its tech sector peers. See our latest analysis for PCI-PAL

What’s the catalyst for PCI-PAL’s sector growth?

AIM:PCIP Past Future Earnings Feb 16th 18
AIM:PCIP Past Future Earnings Feb 16th 18
Despite all the opportunities, tech companies still face a host of challenges, including coping with an increasingly burdensome global regulation. Since the regulatory environment is unlikely to become less complex, organizations will need to address the constantly evolving rules for governing privacy, security and handling of data, as well as cybersecurity issues. In the previous year, the industry saw growth in the twenties, beating the UK market growth of 11.85%. PCI-PAL 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 PCI-PAL may be trading cheaper than its peers.

Is PCI-PAL and the sector relatively cheap?

AIM:PCIP PE PEG Gauge Feb 16th 18
AIM:PCIP PE PEG Gauge Feb 16th 18
The IT services sector’s PE is currently hovering around 26.93x, higher than the rest of the UK stock market PE of 17.6x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 14.50% compared to the market’s 11.98%, which may be indicative of past tailwinds. Since PCI-PAL’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge PCI-PAL’s value is to assume the stock should be relatively in-line with its industry.

Next Steps:

PCI-PAL has been an tech industry laggard in the past year. If PCI-PAL 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 tech 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 PCI-PAL’s fundamentals in order to build a holistic investment thesis.