ATA Inc (NASDAQ:ATAI), a US$122.24M small-cap, operates in the consumer services industry, whose performance is linked to business conditions and the general economy, as it draws revenue from industries across different sectors. Consumer services analysts are forecasting for the entire industry, a positive double-digit growth of 15.36% in the upcoming year . In this article, I’ll take you through the sector growth expectations, as well as evaluate whether ATA is lagging or leading in the industry. Check out our latest analysis for ATA
What’s the catalyst for ATA’s sector growth?
A main driver of the industry has been the growing relevance of e-commerce for consumer services, enabling companies to reduce cost to serve while growing market presence at the same time. A crucial strategy for incumbents is to be well-positioned in response to the growing importance of pure e-commerce players, as well as building up their own capabilities around e-commerce. In the past year, the industry delivered growth in the twenties, beating the US market growth of 9.97%. ATA 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 consumer services peers. As the company trails the rest of the industry in terms of growth, ATA may also be a cheaper stock relative to its peers.
Is ATA and the sector relatively cheap?
Consumer services companies are typically trading at a PE of 21.57x, relatively similar to the rest of the US stock market PE of 18.95x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.98% on equities compared to the market’s 10.35%. Since ATA’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge ATA’s value is to assume the stock should be relatively in-line with its industry.
ATA has been a consumer services industry laggard in the past year. If ATA 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 services 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 ATA’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 ATAI’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 ATA? 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.