E-Land Apparel Limited (NSEI:ELAND), a INR₹1.13B small-cap, operates in the consumer discretionary industry, whose sales are driven primarily by consumer sentiment, which is closely linked to employment and wages. Access to capital is also important, so interest rates and lending standards influence the rate at which consumers purchase luxury goods. The industry also faces a very competitive environment, with further pressure on margins from changes customer preferences, including the continued rise in online sales. Consumer discretionary analysts are forecasting for the entire industry, a relatively muted growth of 8.28% in the upcoming year . An interesting question to explore is whether we can we benefit from entering into the luxury goods sector right now. In this article, I’ll take you through the sector growth expectations, and also determine whether E-Land Apparel is a laggard or leader relative to its consumer discretionary sector peers. See our latest analysis for E-Land Apparel
What’s the catalyst for E-Land Apparel’s sector growth?
E-retailing is expected to remain the fastest growing sales channel, shifting the retail landscape. Significant number of retail store closures and bankruptcies were an indication of both changing consumer preferences and rising online competition. In the previous year, the industry saw growth of 3.81%, though still underperforming the wider Indian stock market. E-Land Apparel 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 E-Land Apparel may be trading cheaper than its peers.
Is E-Land Apparel and the sector relatively cheap?
The luxury goods industry is trading at a PE ratio of 13x, below the broader Indian stock market PE of 28x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry did returned a lower 6.98% compared to the market’s 9.83%, which may explain the lower relative valuation. Since E-Land Apparel’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge E-Land Apparel’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? E-Land Apparel has been a luxury goods industry laggard in the past year. If your initial investment thesis is around the growth prospects of E-Land Apparel, there are other luxury goods companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how E-Land Apparel fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If E-Land Apparel 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 luxury goods 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 E-Land Apparel’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into E-Land Apparel’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 consumer discretionary stocks instead? Use our free playform to see my list of over 100 other consumer discretionary companies trading on the market.