dotDigital Group Plc (LON:DOTD), is a UK£298.9m small-cap, which operates in the software industry based in United Kingdom. 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 software tech industry, a strong double-digit growth of 11.1% in the upcoming year , and a whopping growth of 66.5% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. Today, I’ll take you through the tech sector growth expectations, as well as evaluate whether dotDigital Group is lagging or leading in the industry.
What’s the catalyst for dotDigital Group’s sector growth?
The battle for competitive advantage has led businesses to adopt new the cutting-edge technology, or risk being left behind. In the previous year, the industry saw growth in the teens, though still underperforming the wider UK stock market. dotDigital Group leads the pack with its impressive earnings growth of 24.1% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with dotDigital Group poised to deliver a 28.2% growth over the next couple of years compared to the industry’s 11.1%. This growth may make dotDigital Group a more expensive stock relative to its peers.
Is dotDigital Group and the sector relatively cheap?
The software tech industry is trading at a PE ratio of 28.23x, above the broader UK stock market PE of 17.37x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 13.0% on equities compared to the market’s 12.5%. On the stock-level, dotDigital Group is trading at a higher PE ratio of 39.77x, making it more expensive than the average software stock. In terms of returns, dotDigital Group generated 22.9% in the past year, which is 9.9% over the software sector.
dotDigital Group’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If dotDigital Group has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other tech companies. However, before you make a decision on the stock, I suggest you look at dotDigital Group’s fundamentals in order to build a holistic investment thesis.
- 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.
- Historical Track Record: What has DOTD’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.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of dotDigital Group? 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 past 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. For errors that warrant correction please contact the editor at email@example.com.