Bentley Capital Limited (ASX:BEL), a AUDA$8.37M small-cap, is a capital market firm operating in an industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Financial services analysts are forecasting for the entire industry, a relatively muted growth of 8.58% in the upcoming year , and a whopping growth of 50.58% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether BEL is a laggard or leader relative to its financial sector peers. Check out our latest analysis for Bentley Capital

What’s the catalyst for BEL’s sector growth?

The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw growth of 2.98%, though still underperforming the wider Australian stock market. BEL lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means BEL may be trading cheaper than its peers.

Is BEL and the sector relatively cheap?

Capital markets companies are typically trading at a PE of 22x, in-line with the Australian stock market PE of 17x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 8.68% compared to the market’s 11.92%, potentially indicative of past headwinds. Since BEL’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge BEL’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? BEL has been a capital markets industry laggard in the past year. If your initial investment thesis is around the growth prospects of BEL, there are other capital markets companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how BEL fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If BEL has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its capital markets peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at BEL’s future cash flows in order to assess whether the stock is trading at a reasonable price.