China Auto Logistics Inc (NASDAQ:CALI), a USD$8.88M small-cap, is a retail company operating in an industry which has experienced a structural shift in terms of digitalization. Looking at trends for growth in macroeconomic factors such as inflation and interest rates are important when thinking about investing in retailers. Retail analysts are forecasting for the entire industry, a strong double-digit growth of 10.46% in the upcoming year, and a robust short-term growth of 17.21% over the next couple of years. However, this rate came in below the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, and also determine whether CALI is a laggard or leader relative to its retail peers. See our latest analysis for CALI
What’s the catalyst for CALI's sector growth?
E-commerce continues to be the fastest growing sales platform for consumer goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. In the past year, the industry delivered growth of 6.48%, beating the US market growth of 4.49%. CALI leads the pack with its impressive earnings growth of 93.91% over the past year. This proven growth may make CALI a more expensive stock relative to its peers.
Is CALI and the sector relatively cheap?
The retail sector's PE is currently hovering around 16x, below the broader US stock market PE of 22x. This illustrates a somewhat under-priced sector compared to the rest of the market. Furthermore, the industry returned a higher 13.12% compared to the market’s 9.99%, making it a potentially attractive sector. Since CALI’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CALI’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? CALI recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto CALI as part of your portfolio. However, if you’re relatively concentrated in retail, you may want to value CALI based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If CALI has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the retail industry. Before you make a decision on the stock, take a look at CALI’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into China Auto Logistics'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 retail stocks instead? Use our free playform to see my list of over 200 other retail 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.