21Vianet Group Inc (NASDAQ:VNET), is a US$867.52M small-cap, which operates in the software industry based in China. Innovations such as augmented reality, machine learning and autonomous vehicles are paving the way for tech sector growth. Tech analysts are forecasting for the entire software tech industry, a positive double-digit growth of 16.40% in the upcoming year , and a massive growth of 34.25% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether 21Vianet Group is a laggard or leader relative to its tech sector peers. See our latest analysis for 21Vianet Group
What’s the catalyst for 21Vianet Group’s sector growth?
The battle for competitive advantage has led businesses to adopt new the cutting-edge technology, or risk being left behind. Many technologies are now coming into their own as their power and speed increase and the cost of delivering them goes down. And some are pursing growth through various strategies including new M&A, collaboration and alliances, as well as cost reduction and organic growth. In the past year, the industry delivered growth in the teens, beating the US market growth of 9.79%. 21Vianet Group lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means 21Vianet Group may be trading cheaper than its peers.
Is 21Vianet Group and the sector relatively cheap?
The software tech industry is trading at a PE ratio of 29.26x, above the broader US stock market PE of 18.76x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 10.32% on equities compared to the market’s 10.47%. Since 21Vianet Group’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge 21Vianet Group’s value is to assume the stock should be relatively in-line with its industry.
21Vianet Group has been an tech industry laggard in the past year. If 21Vianet Group has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its tech peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at 21Vianet Group’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 VNET’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 21Vianet 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 pass 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.