Enghouse Systems Limited (TSE:ENGH), is a CA$2.2b small-cap, which operates in the software industry based in Canada. Technology has become a vital component of every industry, bringing unprecedented opportunities for growth, along with challenges and competition. Tech analysts are forecasting for the entire software tech industry, an extremely robust growth of 43% in the upcoming year , and a whopping triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Canadian stock market as a whole. Today, I’ll take you through the tech sector growth expectations, as well as evaluate whether Enghouse Systems is lagging or leading in the industry.
What’s the catalyst for Enghouse Systems’s sector growth?
Since the regulatory environment is unlikely to become less complex, organizations will need to address the constantly evolving rules for governing data. In the past year, the industry delivered growth in the teens, though still underperforming the wider Canadian stock market. Enghouse Systems lags the pack with its lower growth rate of 10% over the past year, which indicates the company has been growing at a slower pace than its software peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with Enghouse Systems poised to deliver a 13% growth compared to the industry average growth rate of 43%. As an industry laggard, Enghouse Systems may be a cheaper stock relative to its peers.
Is Enghouse Systems and the sector relatively cheap?
Software tech companies are typically trading at a PE of 46.7x, higher than the rest of the Canadian stock market PE of 15.69x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 9.2% on equities compared to the market’s 10%. On the stock-level, Enghouse Systems is trading at a lower PE ratio of 37.95x, making it cheaper than the average software stock. In terms of returns, Enghouse Systems generated 17% in the past year, which is 7.6% over the software sector.
Enghouse Systems is an tech industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Enghouse Systems is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Enghouse 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 ENGH’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 Enghouse 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 email@example.com.