Is Now The Time To Bet On The Tech Sector And Kantone Holdings Limited (HKG:1059)?
Kantone Holdings Limited (SEHK:1059), is a HK$168.70M small-cap, which operates in the software industry based in Hong Kong. While mobile and cloud computing become ubiquitous, there is a new wave of advancement emerging from innovations such as machine learning, robotics and augmented reality. Tech analysts are forecasting for the entire software tech industry, an extremely elevated growth of 41.31% in the upcoming year , and a massive growth of 64.69% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Hong Kong stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Kantone Holdings is a laggard or leader relative to its tech sector peers. See our latest analysis for Kantone Holdings
What’s the catalyst for Kantone Holdings’s sector growth?
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. Over the past year, the industry saw growth of 8.89%, though still underperforming the wider Hong Kong stock market. Kantone Holdings 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 Kantone Holdings may be trading cheaper than its peers.
Is Kantone Holdings and the sector relatively cheap?
The software tech industry is trading at a PE ratio of 32.16x, higher than the rest of the Hong Kong stock market PE of 14x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 5.82% compared to the market’s 9.56%, which may be indicative of past headwinds. Since Kantone Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Kantone Holdings’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Kantone Holdings has been an tech industry laggard in the past year. If Kantone Holdings 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 tech 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 Kantone Holdings’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 1059’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 Kantone Holdings? 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.
