What Is The Future Prospect For Consumer Sector And Differential Brands Group Inc (DFBG)?
Differential Brands Group Inc (NASDAQ:DFBG), a USD$20.58M small-cap, is a consumer discretionary company operating in an industry, whose performance is predominantly driven by consumer confidence, which is linked to employment and wage rates. Purchasing power is also a factor of interest rates and lending standards by financial institutions. These macro elements determine how fast, and how often, consumers buy luxury goods. The sector is also undergoing significant structural shifts resulting from changes in consumer preference, as well as the continued rise in online competition. Consumer discretionary analysts are forecasting for the entire industry, in the upcoming year, and An interesting question to explore is whether we can we benefit from entering into the luxury goods sector right now. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether DFBG is lagging or leading its competitors in the industry. See our latest analysis for DFBG
What’s the catalyst for DFBG's sector growth?
E-commerce continues to be the fastest growing sales platform for consumer discretionary goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. In the past year, the industry delivered growth of 3 percent, though still underperforming the wider Australian stock market. DFBG lags the pack with its negative growth rate of -37 percent over the past year, which indicates the company will be growing at a slower pace than its luxury goods peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 83 percent in the upcoming year. This future growth may make DFBG a more expensive stock relative to its peers.
Is DFBG and the sector relatively cheap?
The luxury goods industry is trading at a PE ratio of 13 times, lower than the rest of the Australian stock market PE of 22 times. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry did returned a lower 10 percent compared to the market’s 16 percent, which may explain the lower relative valuation. Since DFBG’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge DFBG’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? DFBG’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto DFBG as part of your portfolio. However, if you’re relatively concentrated in luxury goods, you may want to value DFBG based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If DFBG has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the luxury goods industry. However, before you make a decision on the stock, I suggest you look at DFBG’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into Differential Brands Group'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 consumer discretionary stocks instead? Use our free playform to see my list of over 100 other consumer discretionary 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.
