CM Seven Star Acquisition Corporation (NASDAQ:CMSS), a US$255.07M small-cap, is a capital market firm 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 aspects of banking and capital markets are being attacked by new competitors, whose key advantage is a leaner and technology-enabled operating model, allowing them to scale at a faster rate and meet changing consumer needs. Financial services analysts are forecasting for the entire industry, a relatively muted growth of 9.31% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Should your portfolio be overweight in the capital markets sector at the moment? Below, I will examine the sector growth prospects, and also determine whether CM Seven Star Acquisition is a laggard or leader relative to its financial sector peers. Check out our latest analysis for CM Seven Star Acquisition
What’s the catalyst for CM Seven Star Acquisition’s sector growth?
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered growth in the teens, beating the US market growth of 9.88%. Given the lack of analyst consensus in CM Seven Star Acquisition’s outlook, we could potentially assume the stock’s growth rate broadly follows its capital markets industry peers. This means it is an attractive growth stock relative to the wider US stock market.
Is CM Seven Star Acquisition and the sector relatively cheap?
The capital markets industry is trading at a PE ratio of 17.72x, relatively similar to the rest of the US stock market PE of 19.15x. 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 13.60% compared to the market’s 10.46%, potentially illustrative of past tailwinds. Since CM Seven Star Acquisition’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CM Seven Star Acquisition’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Capital markets stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. If growth was one of your main investment catalyst in the sector, now would be the time to revisit your holdings in CM Seven Star Acquisition. Keep in mind the sector is trading relatively in-line with the rest of the market, which may mean you’ll be selling out at a reasonable price. However, before you make a decision on the stock, I suggest you look at CM Seven Star Acquisition’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 CMSS’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 CM Seven Star Acquisition? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!