Elsight Limited (ASX:ELS), is a AUD$62.95M small-cap, which operates in the tech hardware industry based in Australia. Innovations such as augmented reality, machine learning and autonomous vehicles are paving the way for tech sector growth. Tech analysts are forecasting for the entire hardware tech, industry, negative growth in the upcoming year, and Today, I will analyse the industry outlook, as well as evaluate whether ELS is lagging or leading in the industry. Check out our latest analysis for Elsight
What’s the catalyst for ELS's sector growth?
The battle for competitive advantage has led businesses to adopt new the cutting-edge technology, or risk being left behind. Many technologies are now coming into their own as their power and speed increase and the cost of delivering them goes down. And some are pursing growth through various strategies including new M&A, collaboration and alliances, as well as cost reduction and organic growth. In the past year, the industry delivered growth in the teens, beating the Australian market growth of -4.59%. Given the lack of analyst consensus in ELS’s outlook, we could potentially assume the stock’s growth rate broadly follows its tech hardware industry peers. This means it is an attractive growth stock relative to the wider Australian stock market.
Is ELS and the sector relatively cheap?
The tech hardware sector's PE is currently hovering around 26x, above the broader Australian stock market PE of 16x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 10.99% on equities compared to the market’s 11.92%. Since ELS’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge ELS’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? tech stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. However, the sector is also relatively more expensive, which makes an appealing case to sell the stocks. If you’re currently concentrated in tech, it may be worth revisiting your investment thesis for each holding.
Are you a potential investor? If you’ve been keeping an eye on the tech sector, now may not be the best time to enter. The industry is expected to deliver lower growth compared to the broader market, and it is also trading at a higher PE ratio – not the most attractive investment case! However, if you’re adamant on the tech sector, I suggest you examine ELS and its peers further, looking at their cash flow valuation as well as their financial health.
For a deeper dive into Elsight'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.