Is Now The Time To Bet On The Transport Sector And Mainfreight Limited (NZE:MFT)?

Mainfreight Limited (NZSE:MFT), a NZ$2.46B small-cap, operates in the logistics industry which has recently been a benefactor of the rise in e-commerce activities across the world. Since vendors have to ship orders fast, the demand for air cargo services has gone up considerably, due to its ability to move goods from one location to another within a short span of time. Transport analysts are forecasting for the whole industry, a relatively muted growth of 6.18% in the upcoming year , and an optimistic near-term growth of 22.67% over the next couple of years. This rate is larger than the growth rate of the NZ stock market as a whole. Is the logistics industry an attractive sector-play right now? Below, I will examine the sector growth prospects, and also determine whether Mainfreight is a laggard or leader relative to its transportation sector peers. View our latest analysis for Mainfreight

What’s the catalyst for Mainfreight's sector growth?

Fuel prices were at their lowest level at the start of the decade, largely in response to low prices for crude oil. This positively impacted freighting companies, who saw higher margins as a result of lower cost. In the previous year, the industry saw growth in the teens, beating the NZ market growth of 3.89%. Mainfreight lags the pack with its lower growth rate of 4.61% over the past year, which indicates the company will be growing at a slower pace than its logistics peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 17.36% in the upcoming year. This future growth may make Mainfreight a more expensive stock relative to its peers.

Is Mainfreight and the sector relatively cheap?

Air freight companies are typically trading at a PE of 17.16x, in-line with the NZ stock market PE of 14.02x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 14.90% compared to the market’s 10.96%, potentially illustrative of past tailwinds. On the stock-level, Mainfreight is trading at a higher PE ratio of 24.12x, making it more expensive than the average logistics stock. In terms of returns, Mainfreight generated 15.37% in the past year, in-line with its industry average.

Next Steps:

Mainfreight’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 Mainfreight 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 logistics companies. However, before you make a decision on the stock, I suggest you look at Mainfreight's fundamentals in order to build a holistic investment thesis.

1. 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.
2. Historical Track Record: What has MFT'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.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Mainfreight? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.