October Insights Into Financial Stocks: S&U plc (LON:SUS)
S&U plc (LON:SUS), a UK£269m small-cap, is a consumer finance company operating in an industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Financial services analysts are forecasting for the entire industry, a strong double-digit growth of 24% in the upcoming year , and a massive growth of 69% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether S&U is lagging or leading in the industry.
See our latest analysis for S&U
What’s the catalyst for S&U’s sector growth?
The threat of disintermediation in the consumer finance industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered growth in the twenties, beating the UK market growth of 15%. S&U lags the pack with its lower growth rate of 18% over the past year, which indicates the company has been growing at a slower pace than its consumer finance peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with S&U poised to deliver a 17% growth compared to the industry average growth rate of 24%. As an industry laggard, S&U may be a cheaper stock relative to its peers.
Is S&U and the sector relatively cheap?
The consumer finance sector’s PE is currently hovering around 9.33x, below the broader UK stock market PE of 16.45x. This illustrates a somewhat under-priced sector compared to the rest of the market. Furthermore, the industry returned a higher 18% compared to the market’s 12%, making it a potentially attractive sector. On the stock-level, S&U is trading at a PE ratio of 9.78x, which is relatively in-line with the average consumer finance stock. In terms of returns, S&U generated 17% in the past year, in-line with its industry average.
Next Steps:
If S&U has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a consumer finance industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the financial sector. However, before you make a decision on the stock, I suggest you look at S&U’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 SUS’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 S&U? 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 editorial-team@simplywallst.com.
