Capital First Limited (NSEI:CAPF), a ₹62.60B small-cap, is a consumer finance company 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 consumer finance 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, an extremely robust growth of 33.84% in the upcoming year . An interesting question to explore is whether we can we benefit from entering into the consumer finance sector right now. In this article, I’ll take you through the sector growth expectations, and also determine whether Capital First is a laggard or leader relative to its financial sector peers. See our latest analysis for Capital First
What’s the catalyst for Capital First’s sector growth?
The threat of disintermediation in the consumer finance industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw growth in the teens, beating the Indian market growth of 14.99%. Capital First leads the pack with its impressive earnings growth of 33.71% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 30.56% compared to the wider consumer finance sector growth hovering in the thirties next year. As a future industry laggard in growth, Capital First may be a cheaper stock relative to its peers.
Is Capital First and the sector relatively cheap?
Consumer finance companies are typically trading at a PE of 28.95x, in-line with the Indian stock market PE of 24.95x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 7.42% compared to the market’s 9.74%, potentially indicative of past headwinds. On the stock-level, Capital First is trading at a lower PE ratio of 20.05x, making it cheaper than the average consumer finance stock. In terms of returns, Capital First generated 12.75% in the past year, which is 5.33% over the consumer finance sector.
Next Steps:Capital First is a consumer finance industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Capital First is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Capital First’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 CAPF’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 Capital First? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!