Tech Industry: A Dive Into GB Group plc (LON:GBG)
GB Group plc (LON:GBG), is a UK£884.7m small-cap, which operates in the software industry based in United Kingdom. In the past decade, mega-tech companies, have built highly successful and ubiquitous platforms and ecosystem in which smaller companies gravitate towards. Tech analysts are forecasting for the entire software tech industry, a positive double-digit growth of 11.9% in the upcoming year , and a massive growth of 92.1% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether GB Group is lagging or leading in the industry.
See our latest analysis for GB Group
What’s the catalyst for GB Group’s sector growth?
Many tech companies are repositioning themselves by focusing on high-growth areas such as IBM’s artificial intelligence play in Watson. In the previous year, the industry saw growth of 4.4%, though still underperforming the wider UK stock market. GB Group lags the pack with its negative growth rate of -0.9% over the past year, which indicates the company has been growing at a slower pace than its software peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 45.5% in the upcoming year. This future growth may make GB Group a more expensive stock relative to its peers.
Is GB Group and the sector relatively cheap?
The software tech sector’s PE is currently hovering around 31.52x, above the broader UK stock market PE of 17.32x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 11.0% on equities compared to the market’s 12.4%. On the stock-level, GB Group is trading at a higher PE ratio of 81.54x, making it more expensive than the average software stock. In terms of returns, GB Group generated 6.8% in the past year, which is 4.2% below the software sector.
Next Steps:
GB Group’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If GB Group has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other tech companies. However, before you make a decision on the stock, I suggest you look at GB Group’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 GBG’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 GB Group? 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.
