Ruth’s Hospitality Group Inc (NASDAQ:RUTH), a US$936.42m small-cap, is a consumer discretionary company operating in an 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 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 15.53% in the upcoming year , and a massive growth of 45.82% over the next couple of years. the growth rate of the US stock market as a whole. Is now the right time to pick up some shares in leisure companies? Below, I will examine the sector growth prospects, and also determine whether Ruth’s Hospitality Group is a laggard or leader relative to its consumer discretionary sector peers.
What’s the catalyst for Ruth’s Hospitality Group’s sector growth?
Although there is higher competition for consumer leisure time, due to the rise of new activities such as online streaming and mobile games, the whole industry has been expanding in various channels to better interact with its consumer. Traditional incumbents are forced to adapt or fall behind. Over the past year, the industry saw growth in the teens, beating the US market growth of 14.01%. Ruth’s Hospitality Group lags the pack with its lower growth rate of 9.03% over the past year, which indicates the company has been growing at a slower pace than its leisure products. peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 24.64% in the upcoming year. This future growth may make Ruth’s Hospitality Group a more expensive stock relative to its peers.
Is Ruth’s Hospitality Group and the sector relatively cheap?
The leisure sector’s PE is currently hovering around 21.51x, relatively similar to the rest of the US stock market PE of 18.28x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 13.20% on equities compared to the market’s 11.40%. On the stock-level, Ruth’s Hospitality Group is trading at a higher PE ratio of 27.01x, making it more expensive than the average leisure products. stock. In terms of returns, Ruth’s Hospitality Group generated 39.36% in the past year, which is 26.16% over the leisure products. sector.
Ruth’s Hospitality Group’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 Ruth’s Hospitality Group 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 Ruth’s Hospitality Group’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 RUTH’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 Ruth’s Hospitality Group? 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.