Advanced Enzyme Technologies Limited (NSE:ADVENZYMES), a ₹24.13b small-cap, is a chemicals company operating in an industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. In addition to cyclicality, chemicals companies face the issue of environmental concerns. This is a key risk that investors have to keep in mind when looking at stocks such as Advanced Enzyme Technologies due to the risky nature of its activities, which may impact future cash flows. Basic material analysts are forecasting for the entire industry, a strong double-digit growth of 18.73% in the upcoming year , and a whopping growth of 46.03% over the next couple of years. However this rate still came in below the growth rate of the Indian stock market as a whole. Should your portfolio be overweight in the chemicals sector at the moment? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether Advanced Enzyme Technologies is lagging or leading its competitors in the industry.
What’s the catalyst for Advanced Enzyme Technologies's sector growth?
As a whole, the basic materials sector seems to be predominantly mature in terms of its industry life cycle. Companies appear to be highly competitive and consolidation seems to be a common theme. There are plenty of emerging trends to deal with across the board including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the past year, the industry delivered growth in the twenties, beating the Indian market growth of 18.86%. Advanced Enzyme Technologies lags the pack with its negative growth rate of -0.66% over the past year, which indicates the company has been growing at a slower pace than its chemicals peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 32.81% in the upcoming year. This future growth may make Advanced Enzyme Technologies a more expensive stock relative to its peers.
Is Advanced Enzyme Technologies and the sector relatively cheap?
The chemicals industry is trading at a PE ratio of 19.89x, in-line with the Indian stock market PE of 21.46x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 13.99% compared to the market’s 9.84%, potentially illustrative of past tailwinds. On the stock-level, Advanced Enzyme Technologies is trading at a higher PE ratio of 26.78x, making it more expensive than the average chemicals stock. In terms of returns, Advanced Enzyme Technologies generated 16.08% in the past year, which is 2.10% over the chemicals sector.
Advanced Enzyme Technologies’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 Advanced Enzyme Technologies 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 chemicals companies. However, before you make a decision on the stock, I suggest you look at Advanced Enzyme Technologies'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 ADVENZYMES'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 Advanced Enzyme Technologies? 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 email@example.com.
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