MER Telemanagement Solutions Ltd (NASDAQ:MTSL), is a USD$6.21M small-cap, which operates in the tech hardware industry based in Israel. In the past decade, mega-tech companies, have built highly successful and ubiquitous platforms and ecosystem in which smaller companies gravitate towards. Tech analysts are forecasting for the entire hardware tech industry, a somewhat weaker growth of 1.48% in the upcoming year , and a whopping growth of 30.06% over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, and also determine whether MTSL is a laggard or leader relative to its tech sector peers. See our latest analysis for MTSL
What’s the catalyst for MTSL’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 previous year, the industry saw growth in the teens, beating the US market growth of 10.30%. MTSL 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 MTSL may be trading cheaper than its peers.
Is MTSL and the sector relatively cheap?
Tech hardware companies are typically trading at a PE of 25x, 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 9.46% on equities compared to the market’s 10.06%. Since MTSL’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MTSL’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? MTSL has been a tech industry laggard in the past year. If your initial investment thesis is around the growth prospects of MTSL, there are other tech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how MTSL fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If MTSL 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 MTSL’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into MER Telemanagement Solutions’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.