Enea AB (publ) (STO:ENEA), is a kr2.1b small-cap, which operates in the IT services industry based in Sweden. 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 a positive double-digit growth of 21% in the upcoming year , and a massive growth of 68% over the next couple of years. This rate is larger than the growth rate of the SE stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether Enea is lagging or leading in the industry.
What’s the catalyst for Enea’s sector growth?
Many technologies are now coming into their own as their power and speed increase and the cost of delivering them goes down. Over the past year, the industry saw growth in the twenties, beating the SE market growth of 11%. Enea lags the pack with its lower growth rate of 14% over the past year, which indicates the company has been growing at a slower pace than its IT services peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 33% in the upcoming year. This future growth may make Enea a more expensive stock relative to its peers.
Is Enea and the sector relatively cheap?
The IT services sector’s PE is currently hovering around 19.98x, relatively similar to the rest of the SE stock market PE of 17.73x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 21% compared to the market’s 16%, potentially illustrative of past tailwinds. On the stock-level, Enea is trading at a PE ratio of 20.8x, which is relatively in-line with the average IT services stock. In terms of returns, Enea generated 11% in the past year, which is 9.8% below the IT services sector.
Enea’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If Enea has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at Enea’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 ENEA’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 Enea? 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 firstname.lastname@example.org.