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Is Rand Capital Corporation (RAND) Cheap And High Growth?

Rand Capital Corporation (NASDAQ:RAND), a USD$18.90M small-cap, operates in the capital markets industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Financial services analysts are forecasting for the entire industry, a somewhat weaker growth of 8.70% in the upcoming year, and a robust short-term growth of 27.01% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether RAND is a laggard or leader relative to its financial sector peers. See our latest analysis for RAND

What’s the catalyst for RAND's sector growth?

NasdaqCM:RAND Past Future Earnings Oct 18th 17
NasdaqCM:RAND Past Future Earnings Oct 18th 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 previous year, the industry saw growth in the teens, beating the US market growth of 4.49%. RAND 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 capital markets peers. As the company trails the rest of the industry in terms of growth, RAND may also be a cheaper stock relative to its peers.

Is RAND and the sector relatively cheap?

NasdaqCM:RAND PE PEG Gauge Oct 18th 17
NasdaqCM:RAND PE PEG Gauge Oct 18th 17

The capital markets industry is trading at a PE ratio of 19x, in-line with the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.19% on equities compared to the market’s 9.99%. Since RAND’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge RAND’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? RAND has been a capital markets industry laggard in the past year. If your initial investment thesis is around the growth prospects of RAND, there are other capital markets companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how RAND fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If RAND 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 capital markets 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 RAND’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Rand Capital'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.