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Is Eltek Ltd (ELTK) An Industry Laggard Or Leader?

Eltek Ltd (NASDAQ:ELTK), is a USD$6.47M small-cap, which operates in the tech hardware industry based in Israel. The sector has significantly been impacted by technology megatrends, which have changed how industrial and consumer-oriented companies operate. Tech analysts are forecasting for the entire hardware tech industry, a positive double-digit growth of 15.62% in the upcoming year , and an enormous growth of 52.89% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Today, I’ll take you through the tech sector growth expectations, as well as evaluate whether ELTK is lagging or leading in the industry. Check out our latest analysis for Eltek

What’s the catalyst for ELTK’s sector growth?

NasdaqCM:ELTK Past Future Earnings Nov 9th 17
NasdaqCM:ELTK Past Future Earnings Nov 9th 17

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. Over the past year, the industry saw growth in the twenties, beating the US market growth of 10.30%. ELTK 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 tech hardware peers. As the company trails the rest of the industry in terms of growth, ELTK may also be a cheaper stock relative to its peers.

Is ELTK and the sector relatively cheap?

NasdaqCM:ELTK PE PEG Gauge Nov 9th 17
NasdaqCM:ELTK PE PEG Gauge Nov 9th 17

The tech hardware industry is trading at a PE ratio of 26x, 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. Furthermore, the industry returned a similar 10.55% on equities compared to the market’s 10.06%. Since ELTK’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge ELTK’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? ELTK has been a tech industry laggard in the past year. If your initial investment thesis is around the growth prospects of ELTK, there are other tech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how ELTK fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If ELTK 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 tech 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 ELTK’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Eltek’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.