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Marchex Inc (NASDAQ:MCHX): Is Tech An Attractive Sector Play?

Micheal Lombardo

Marchex Inc (NASDAQ:MCHX), is a US$148.04M small-cap, which operates in the software industry based in United States. Whether it’s the next big thing in tech or an alliance with a partner in another industry, tech companies have plenty of opportunities for their companies to thrive. Tech analysts are forecasting for the entire software tech industry, a positive double-digit growth of 13.70% in the upcoming year , and an enormous growth of 31.13% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Marchex is a laggard or leader relative to its tech sector peers. View our latest analysis for Marchex

What’s the catalyst for Marchex’s sector growth?

NasdaqGS:MCHX Past Future Earnings Feb 13th 18

US-based mega-competitors have been, and continue to be, the key drivers of industry growth. Many tech companies are repositioning themselves by focusing on high-growth areas such as IBM’s artificial intelligence play in Watson and Adobe’s shift to marketing its product for cloud computing. In the previous year, the industry saw growth in the teens, beating the US market growth of 9.87%. Marchex leads the pack with its impressive earnings growth of 85.65% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Marchex poised to deliver a 55.01% growth over the next couple of years compared to the industry’s 13.70%.

Is Marchex and the sector relatively cheap?

NasdaqGS:MCHX PE PEG Gauge Feb 13th 18

Software tech companies are typically trading at a PE of 25.12x, higher than the rest of the US stock market PE of 18.8x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 10.24% on equities compared to the market’s 10.48%. Since Marchex’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Marchex’s value is to assume the stock should be relatively in-line with its industry.

Next Steps:

Marchex’s industry-beating future is a positive for investors. If Marchex 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 tech industry. However, before you make a decision on the stock, I suggest you look at Marchex’s fundamentals in order to build a holistic investment thesis.

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.