Ashford Inc (AMEX:AINC), a USD$134.55M small-cap, is a capital market firm operating in an industry, which has been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, a relatively muted growth of 8.70% in the upcoming year , and a robust short-term growth of 27.01% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether AINC is lagging or leading in the industry. View our latest analysis for Ashford
What’s the catalyst for AINC’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 4.49%. AINC lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its capital markets peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 37.86% in the upcoming year.
Is AINC and the sector relatively cheap?
The capital markets industry is trading at a PE ratio of 19x, 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 11.19% on equities compared to the market’s 9.99%. Since AINC’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge AINC’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? AINC’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto AINC as part of your portfolio. However, if you’re relatively concentrated in capital markets, you may want to value AINC based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If AINC 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 capital markets industry. Before you make a decision on the stock, take a look at AINC’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Ashford’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.