Xiabuxiabu Catering Management (China) Holdings Co Ltd (HKG:520), a HK$15.06b small-cap, is a consumer discretionary company operating in an industry, whose performance is predominantly driven by consumer confidence, which is linked to employment and wage rates. Purchasing power is also a factor of interest rates and lending standards by financial institutions. These macro elements determine how fast, and how often, consumers buy leisure products. Leisure service companies also face a structural shift resulting from technology, which enables them to engage with is customers on a whole new level through online and mobile platforms. This has been a key driver for industry growth. Consumer discretionary analysts are forecasting for the entire industry, a strong double-digit growth of 12.7% in the upcoming year , and a whopping growth of 77.0% over the next couple of years. the growth rate of the Hong Kong stock market as a whole. Is the leisure industry an attractive sector-play right now? Below, I will examine the sector growth prospects, and also determine whether Xiabuxiabu Catering Management (China) Holdings is a laggard or leader relative to its consumer discretionary sector peers.
What’s the catalyst for Xiabuxiabu Catering Management (China) Holdings’s sector growth?
Rising competition for consumer attention from new activities such as online streaming and mobile games has forced traditional incumbents to adapt or fall behind. However, the leisure service industry as a whole has been expanding. Over the past year, the industry saw growth in the teens, though still underperforming the wider Hong Kong stock market. Xiabuxiabu Catering Management (China) Holdings is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 14.2% in the prior year. However, analysts are expecting the company to accelerate ahead of its peers over the next year, and deliver a 32.3% growth next year. This growth may make Xiabuxiabu Catering Management (China) Holdings a more expensive stock relative to its peers.
Is Xiabuxiabu Catering Management (China) Holdings and the sector relatively cheap?
Leisure companies are typically trading at a PE of 17.41x, above the broader Hong Kong stock market PE of 11.83x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 7.1% compared to the market’s 9.7%, which may be indicative of past headwinds. On the stock-level, Xiabuxiabu Catering Management (China) Holdings is trading at a higher PE ratio of 27.9x, making it more expensive than the average leisure products. stock. In terms of returns, Xiabuxiabu Catering Management (China) Holdings generated 21.2% in the past year, which is 14.0% over the leisure products. sector.
Xiabuxiabu Catering Management (China) Holdings’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 Xiabuxiabu Catering Management (China) Holdings 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 leisure companies. However, before you make a decision on the stock, I suggest you look at Xiabuxiabu Catering Management (China) Holdings’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 520’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 Xiabuxiabu Catering Management (China) Holdings? 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.