Smart Metering Systems plc (LON:SMS), is a UK£672.3m small-cap, which operates in the tech hardware industry based in United Kingdom. The sector has significantly been impacted by technology megatrends, which have changed how industrial and consumer-oriented companies operate. Tech analysts are forecasting for the entire hardware tech industry, a somewhat weaker growth of 5.6% in the upcoming year , and a whopping growth of 37.2% over the next couple of years. However this rate still came in below the growth rate of the UK stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether Smart Metering Systems is lagging or leading in the industry.
What’s the catalyst for Smart Metering Systems’s sector growth?
US-based mega-competitors, such as Alphabet, Apple and Facebook, have been and appears to continue to be, the key drivers of industry growth. Over the past year, the industry saw growth in the forties, beating the UK market growth of 15.1%. Smart Metering Systems lags the pack with its negative growth rate of -3.8% over the past year, which indicates the company has been growing at a slower pace than its tech hardware peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 36.6% in the upcoming year. This future growth may make Smart Metering Systems a more expensive stock relative to its peers.
Is Smart Metering Systems and the sector relatively cheap?
The tech hardware industry is trading at a PE ratio of 17.25x, in-line with the UK stock market PE of 17.25x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 12.4% on equities compared to the market’s 12.3%. On the stock-level, Smart Metering Systems is trading at a higher PE ratio of 36.98x, making it more expensive than the average tech hardware stock. In terms of returns, Smart Metering Systems generated 6.4% in the past year, which is 6.0% below the tech hardware sector.
Smart Metering Systems’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 Smart Metering Systems 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 Smart Metering Systems’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 SMS’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 Smart Metering Systems? 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.