What’s Ahead For Steadfast Group Limited (ASX:SDF)?
Steadfast Group Limited (ASX:SDF), a AU$2.2b small-cap, operates in the insurance industry, which has recently experienced the impact of a softening commercial lines market and a low-yield investment climate. Financial services analysts are forecasting for the entire industry, a somewhat weaker growth of 3.0% in the upcoming year , and an optimistic near-term growth of 16% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Steadfast Group is lagging or leading in the industry.
See our latest analysis for Steadfast Group
What’s the catalyst for Steadfast Group’s sector growth?
Amid challenges from regulatory disruption and sluggish sales, insurers will increasingly consider technology integration to drive growth and efficiency. In the past year, the industry delivered growth in the teens, though still underperforming the wider Australian stock market. Steadfast Group leads the pack with its impressive earnings growth of 14% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Steadfast Group poised to deliver a 14% growth over the next couple of years compared to the industry’s 3.0%. This growth may make Steadfast Group a more expensive stock relative to its peers.
Is Steadfast Group and the sector relatively cheap?
Insurance companies are typically trading at a PE of 18.54x, in-line with the Australian stock market PE of 16.64x. 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 15% compared to the market’s 12%, potentially illustrative of past tailwinds. On the stock-level, Steadfast Group is trading at a higher PE ratio of 27.88x, making it more expensive than the average insurance stock. In terms of returns, Steadfast Group generated 8.5% in the past year, which is 6.8% below the insurance sector.
Next Steps:
Steadfast Group’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If Steadfast Group has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other insurance companies. However, before you make a decision on the stock, I suggest you look at Steadfast Group’s fundamentals in order to build a holistic investment thesis.
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.
Historical Track Record: What has SDF’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.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Steadfast 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
