Willdan Group Inc (NASDAQ:WLDN), a US$353m small-cap, operates in the professional services industry, whose performance is driven by other sectors including construction, financial and mining, making up a large chunk of revenues. Professional services analysts are forecasting for the entire industry, an extremely elevated growth of 32% in the upcoming year , and a massive growth of 54% over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Willdan Group is lagging or leading in the industry.
What’s the catalyst for Willdan Group’s sector growth?
Since revenues are generated primarily from project-work with clients from external companies, the lumpiness of revenues is driven by the activities of other sectors. In the previous year, the industry saw growth in the teens, beating the US market growth of 19%. Willdan Group is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 17% in the prior year. However, analysts are expecting the company to accelerate ahead of its peers over the next year, and deliver a 38% growth next year. This growth may make Willdan Group a more expensive stock relative to its peers.
Is Willdan Group and the sector relatively cheap?
The professional services industry is trading at a PE ratio of 23.92x, in-line with the US stock market PE of 19.35x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11% on equities compared to the market’s 10%. On the stock-level, Willdan Group is trading at a PE ratio of 24.57x, which is relatively in-line with the average professional services stock. In terms of returns, Willdan Group generated 15% in the past year, which is 3.2% over the professional services sector.
If Willdan Group has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a professional services industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the services sector. However, before you make a decision on the stock, I suggest you look at Willdan 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 WLDN’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 Willdan 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 firstname.lastname@example.org.