Is Acasta Enterprises Inc (TSX:AEF) Thriving Or Barely Surviving In The Financial Sector?
Acasta Enterprises Inc (TSX:AEF), a CAD$531.22M 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. Financial services analysts are forecasting for the entire industry, negative growth in the upcoming year, and Below, I will examine the sector growth prospects, as well as evaluate whether AEF is lagging or leading in the industry. Check out our latest analysis for Acasta Enterprises
What’s the catalyst for AEF'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 previous year, the industry endured negative growth of -3.30%, underperforming the Canadian market growth of -19.21%. AEF leads the pack with its impressive earnings growth of 82.14% over the past year. This proven growth may make AEF a more expensive stock relative to its peers.
Is AEF and the sector relatively cheap?
The capital markets industry is trading at a PE ratio of 16x, relatively similar to the rest of the Canadian stock market PE of 17x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 7.78% on equities compared to the market’s 9.49%. Since AEF’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge AEF’s value is to assume the stock should be relatively in-line with its industry. In terms of returns, AEF generated 507.18% in the past year, which is 499.40% over the capital markets sector.
What this means for you:
Are you a shareholder? AEF recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto AEF as part of your portfolio. However, if you’re relatively concentrated in capital markets, you may want to value AEF based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If AEF has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the capital markets industry. Before you make a decision on the stock, take a look at AEF’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Acasta Enterprises's stock, take a look at the company's latest free analysis report to find out more on its financial health and other fundamentals. Interested in other financial stocks instead? Use our free playform to see my list of over 600 other financial companies trading on the market.
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.
