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Is Now The Right Time To Invest In Financials And iShares Trust – iShares Nasdaq Biotechnology ETF (IBB)?

iShares Trust – iShares Nasdaq Biotechnology ETF (NASDAQ:IBB), a USD$9.46B mid-cap, operates in the capital markets 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 7.81% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Today, I’ll take you through the sector growth expectations, and also determine whether IBB is a laggard or leader relative to its financial sector peers. View our latest analysis for iShares Trust – iShares Nasdaq Biotechnology ETF

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

NasdaqGM:IBB Growth In Earnings Dec 2nd 17
NasdaqGM:IBB Growth In Earnings Dec 2nd 17

The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered growth in the teens, beating the US market growth of 11.18%. Given the lack of analyst consensus in IBB’s outlook, we could potentially assume the stock’s growth rate broadly follows its capital markets industry peers. This means it is an attractive growth stock relative to the wider US stock market.

Is IBB and the sector relatively cheap?

NasdaqGM:IBB PE PEG Gauge Dec 2nd 17
NasdaqGM:IBB PE PEG Gauge Dec 2nd 17

Capital markets companies are typically trading at a PE of 17x, relatively similar to the rest of the US stock market PE of 19x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 12.81% compared to the market’s 10.43%, potentially illustrative of past tailwinds. On the stock-level, IBB is trading at a lower PE ratio of 4x, making it cheaper than the average capital markets stock. In terms of returns, IBB generated 11.11% in the past year, which is 2% below the capital markets sector.

What this means for you:

Are you a shareholder? Capital markets stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. If growth was one of your main investment catalyst in the sector, now would be the time to revisit your holdings in IBB. Keep in mind the sector is trading relatively in-line with the rest of the market, which may mean you’ll be selling out at a reasonable price.

Are you a potential investor? The financial sector’s below-market growth and average valuation hardly makes it an exciting investment case. If you’re looking for a high-growth stock with potential mispricing, it seems like capital markets companies like IBB isn’t the right place to look. However, if you’re interested in the stock for other reasons, I suggest you research more into the company’s cash flow as well as its financial health in order to gain a holistic view of the stock.

For a deeper dive into iShares Trust – iShares Nasdaq Biotechnology ETF’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.