Astrotech Corporation (NASDAQ:ASTC), a USD$12.12M small-cap, operates in the aerospace and defence (A&D) industry, which is experiencing a high rate of change resulting from new tech and business models. Capital goods analysts are forecasting for the entire industry, a relatively muted growth of 9.65% in the upcoming year , and a massive growth of 40.15% over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether ASTC is lagging or leading in the industry. View our latest analysis for Astrotech
What’s the catalyst for ASTC’s sector growth?
Stable global gross domestic product growth, relatively lower commodity prices including crude oil, and strong passenger travel demand, especially in the Middle East and Asia Pacific regions, will likely drive the commercial aerospace sub-sector growth. Over the past year, the industry saw growth in the teens, beating the US market growth of 10.30%. ASTC lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means ASTC may be trading cheaper than its peers.
Is ASTC and the sector relatively cheap?
A&D companies are typically trading at a PE of 25x, relatively similar to the rest of the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 12.72% compared to the market’s 10.06%, potentially illustrative of past tailwinds. Since ASTC’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge ASTC’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? ASTC has been an A&D industry laggard in the past year. If your initial investment thesis is around the growth prospects of ASTC, there are other A&D companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how ASTC fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If ASTC 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 A&D 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 ASTC’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Astrotech’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 capital goods stocks instead? Use our free playform to see my list of over 100 other A&D 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.