Amiad Water Systems Ltd (LON:AFS), a UK£57m small-cap, operates in the machinery manufacturing industry, which faces increasing demand of capital equipment and machinery from developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, a strong double-digit growth of 24% in the upcoming year , and a whopping growth of 48% over the next couple of years. the growth rate of the UK stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Amiad Water Systems is a laggard or leader relative to its capital goods peers.
What’s the catalyst for Amiad Water Systems’s sector growth?
Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains more efficiently. In the past year, the industry delivered growth in the teens, beating the UK market growth of 15%. Amiad Water Systems lags the pack with its negative growth rate of -34% over the past year, which indicates the company has been growing at a slower pace than its machinery peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 70% in the upcoming year. This future growth may make Amiad Water Systems a more expensive stock relative to its peers.
Is Amiad Water Systems and the sector relatively cheap?
Machinery companies are typically trading at a PE of 21.94x, in-line with the UK stock market PE of 17.32x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 12% on equities compared to the market’s 12%. On the stock-level, Amiad Water Systems is trading at a higher PE ratio of 32.78x, making it more expensive than the average machinery stock. In terms of returns, Amiad Water Systems generated 5.6% in the past year, which is 6.6% below the machinery sector.
Amiad Water Systems’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 Amiad Water Systems 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 machinery companies. However, before you make a decision on the stock, I suggest you look at Amiad Water Systems’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 AFS’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 Amiad Water Systems? 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 firstname.lastname@example.org.