Is Central Securities Corp (NYSEMKT:CET) On The Right Side Of Disruption?

Central Securities Corp (AMEX:CET), a US$675.36M small-cap, operates in the capital markets 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 fairly unexciting growth rate of 9.93% 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. Is the capital markets industry an attractive sector-play right now? Today, I will analyse the industry outlook, as well as evaluate whether Central Securities is lagging or leading its competitors in the industry. View our latest analysis for Central Securities

What’s the catalyst for Central Securities’s sector growth?

AMEX:CET Past Future Earnings Feb 15th 18
AMEX:CET Past Future Earnings Feb 15th 18
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the previous year, the industry saw growth in the teens, beating the US market growth of 9.86%. Central Securities leads the pack with its impressive earnings growth of over 100% last year. This proven growth may make Central Securities a more expensive stock relative to its peers.

Is Central Securities and the sector relatively cheap?

AMEX:CET PE PEG Gauge Feb 15th 18
AMEX:CET PE PEG Gauge Feb 15th 18
Capital markets companies are typically trading at a PE of 16.68x, relatively similar to the rest of the US stock market PE of 18.97x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 12.89% compared to the market’s 10.30%, potentially illustrative of past tailwinds. On the stock-level, Central Securities is trading at a lower PE ratio of 4.09x, making it cheaper than the average capital markets stock. In terms of returns, Central Securities generated 22.00% in the past year, which is 9.11% over the capital markets sector.

Next Steps:

Central Securities recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. In addition to this, its PE is below its capital markets peers, suggesting it is also trading at a relatively cheaper price. If Central Securities has been on your watchlist for a while, now may be the best time to enter into the stock. Its industry-beating growth delivered may not have been fully accounted for in its shares given its lower PE ratio relative to its peers. However, before you make a decision on the stock, I suggest you look at Central Securities’s fundamentals in order to build a holistic investment thesis.