The Go-Ahead Group plc (LON:GOG), a UK£692.8m small-cap, is a land transport company operating in an industry which is closely linked to the wider economic growth, with demand rising and falling with the broader economy. Transport analysts are forecasting for the whole industry, a strong double-digit growth of 13.1% in the upcoming year , and a whopping growth of 39.2% over the next couple of years. However this rate still came in below the growth rate of the UK stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Go-Ahead Group is a laggard or leader relative to its transportation sector peers.
What’s the catalyst for Go-Ahead Group’s sector growth?
The fall in fuel prices positively impacted transportation companies, who saw higher margins as a result of lower cost. In the previous year, the industry saw growth in the teens, beating the UK market growth of 15.8%. Go-Ahead Group lags the pack with its lower growth rate of 2.5% over the past year, which indicates the company has been growing at a slower pace than its land transport peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with Go-Ahead Group poised to deliver a -19.2% growth compared to the industry average growth rate of 13.1%. As an industry laggard, Go-Ahead Group may be a cheaper stock relative to its peers.
Is Go-Ahead Group and the sector relatively cheap?
The land transport sector’s PE is currently hovering around 13.05x, in-line with the UK stock market PE of 17.49x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 16.6% compared to the market’s 12.4%, potentially illustrative of past tailwinds. On the stock-level, Go-Ahead Group is trading at a lower PE ratio of 7.48x, making it cheaper than the average land transport stock. In terms of returns, Go-Ahead Group generated 41.1% in the past year, which is 24.6% over the land transport sector.
Go-Ahead Group is a land transport industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Go-Ahead Group is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Go-Ahead Group’s fundamentals in order to build a holistic investment thesis.
- 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.
- Historical Track Record: What has GOG’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.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Go-Ahead Group? 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.