Payment Data Systems Inc (NASDAQ:PYDS), is a USD$17.57M small-cap, which operates in the IT services industry based in United States. As various enterprises look to technology to enable their own transformations, the opportunities for technology companies have widened extensively. However, more specifically in the IT service industry, tech analysts are forecasting industry, a positive double-digit growth of 14.57% in the upcoming year, and a massive growth of 41.15% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Today, I’ll take you through the tech sector growth expectations, as well as evaluate whether PYDS is lagging or leading in the industry. See our latest analysis for PYDS
What’s the catalyst for PYDS’s sector growth?
The battle for competitive advantage has led businesses to adopt new the cutting-edge technology, or risk being left behind. Many technologies are now coming into their own as their power and speed increase and the cost of delivering them goes down. And some are pursing growth through various strategies including new M&A, collaboration and alliances, as well as cost reduction and organic growth. Over the past year, the industry saw growth of 3.83%, though still underperforming the wider US stock market. PYDS lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its IT services peers. As the company trails the rest of the industry in terms of growth, PYDS may also be a cheaper stock relative to its peers.
Is PYDS and the sector relatively cheap?
IT services companies are typically trading at a PE of 30x, higher than the rest of the US stock market PE of 22x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 14.62% compared to the market’s 9.99%, which may be indicative of past tailwinds. Since PYDS’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge PYDS’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? PYDS has been a tech industry laggard in the past year. If your initial investment thesis is around the growth prospects of PYDS, there are other tech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how PYDS fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If PYDS has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has 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. Before you make a decision on the stock, I suggest you look at PYDS’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Payment Data Systems’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 tech stocks instead? Use our free playform to see my list of over 1000 other tech 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.