Is Seven Stars Cloud Group Inc (NASDAQ:SSC) An Industry Laggard Or Leader?
Seven Stars Cloud Group Inc (NASDAQ:SSC), is a USD$268.39M small-cap, which operates in the software industry based in China. As various enterprises look to technology to enable their own transformations, the opportunities for technology companies have widened extensively. Tech analysts are forecasting for the entire software tech industry, a fairly unexciting growth rate of 4.54% in the upcoming year . Today, I will analyse the industry outlook, as well as evaluate whether Seven Stars Cloud Group is lagging or leading in the industry. See our latest analysis for Seven Stars Cloud Group
What’s the catalyst for Seven Stars Cloud Group’s sector growth?
Despite all the opportunities, tech companies still face a host of challenges, including coping with an increasingly burdensome global regulation. Since the regulatory environment is unlikely to become less complex, organizations will need to address the constantly evolving rules for governing privacy, security and handling of data, as well as cybersecurity issues. In the past year, the industry delivered growth of 7.42%, though still underperforming the wider US stock market. Seven Stars Cloud Group lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Seven Stars Cloud Group may be trading cheaper than its peers.
Is Seven Stars Cloud Group and the sector relatively cheap?
The software tech industry is trading at a PE ratio of 24x, in-line with the US stock market PE of 20x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 12.14% on equities compared to the market’s 10.45%. Since Seven Stars Cloud Group’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Seven Stars Cloud Group’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Seven Stars Cloud Group has been a tech industry laggard in the past year. If your initial investment thesis is around the growth prospects of Seven Stars Cloud Group, there are other tech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Seven Stars Cloud Group fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Seven Stars Cloud Group 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 Seven Stars Cloud Group’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Seven Stars Cloud Group’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.
