ADDvantage Technologies Group Inc (NASDAQ:AEY), is a USD$15.59M small-cap, which operates in the tech hardware industry based in United States. The sector has significantly been impacted by technology megatrends, which have changed how industrial and consumer-oriented companies operate. Tech analysts are forecasting for the entire hardware tech, industry, a strong double-digit growth of 15.06% 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. Today, I’ll take you through the tech sector growth expectations, and also determine whether AEY is a laggard or leader relative to its tech sector peers. See our latest analysis for AEY
What’s the catalyst for AEY's sector growth?
US-based mega-competitors, such as Alphabet, Apple and Facebook, have been and appears to continue to be, the key drivers of industry growth. Many tech companies are repositioning themselves by focusing on high-growth areas such as IBM’s artificial intelligence play in Watson and Adobe’s shift to marketing its product for cloud computing. In the previous year, the industry saw growth of 7.67%, beating the US market growth of 4.49%. AEY lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its tech hardware peers. As the company trails the rest of the industry in terms of growth, AEY may also be a cheaper stock relative to its peers.
Is AEY and the sector relatively cheap?
The tech hardware sector's PE is currently hovering around 26x, in-line with the US stock market PE of 22x. 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 10.88% on equities compared to the market’s 9.99%. Since AEY’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge AEY’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? AEY has been a tech industry laggard in the past year. If your initial investment thesis is around the growth prospects of AEY, there are other tech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how AEY fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If AEY has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has 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. Before you make a decision on the stock, I suggest you look at AEY’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into ADDvantage Technologies Group'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 tech stocks instead? Use our free playform to see my list of over 1000 other tech 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.