Credible Labs Inc (ASX:CRD), a AU$255.86M small-cap, operates in the financial services industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 24.86% in the upcoming year , and a robust short-term growth of 24.07% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Credible Labs is lagging or leading in the industry. View our latest analysis for Credible Labs
What’s the catalyst for Credible Labs’s sector growth?
The threat of disintermediation in the consumer finance industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the previous year, the industry saw growth in the twenties, beating the Australian market growth of 7.09%. Credible Labs 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 Credible Labs may be trading cheaper than its peers.
Is Credible Labs and the sector relatively cheap?
Consumer finance companies are typically trading at a PE of 16.33x, relatively similar to the rest of the Australian stock market PE of 17.04x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 14.45% compared to the market’s 11.81%, potentially illustrative of past tailwinds. Since Credible Labs’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Credible Labs’s value is to assume the stock should be relatively in-line with its industry.
Credible Labs has been a consumer finance industry laggard in the past year. If Credible Labs has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its financial peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Credible Labs’s fundamentals in order to build a holistic investment thesis.
- 1. 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.
- 2. Historical Track Record: What has CRD’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.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Credible Labs? 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 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.