A Look At Easterly Acquisition Corp (EACQ) And The Financial Sector
Easterly Acquisition Corp (NASDAQ:EACQ), a USD$64.62M small-cap, is a capital market firm operating in an 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 11.34% in the upcoming year , and an enormous growth of 52.09% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether EACQ is lagging or leading in the industry. Check out our latest analysis for Easterly Acquisition
What’s the catalyst for EACQ’s sector growth?
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw growth in the teens, beating the US market growth of 10.30%. EACQ 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 EACQ may be trading cheaper than its peers.
Is EACQ and the sector relatively cheap?
The capital markets industry is trading at a PE ratio of 18x, in-line with the US stock market PE of 22x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 11.73% on equities compared to the market’s 10.06%. Since EACQ’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge EACQ’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? EACQ has been a capital markets industry laggard in the past year. If your initial investment thesis is around the growth prospects of EACQ, there are other capital markets companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how EACQ fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If EACQ 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 capital markets 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 EACQ’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Easterly Acquisition’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 financial stocks instead? Use our free playform to see my list of over 600 other financial 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.
