CYCLIQ Group Limited (ASX:CYQ), a AUDA$12.60M small-cap, is a consumer discretionary company operating in an industry, whose performance is predominantly driven by consumer confidence. Macro elements tend to determine how fast, and how often, consumers buy leisure products. Consumer discretionary analysts are forecasting for the entire industry, a somewhat weaker growth of 7.75% in the upcoming year , and an optimistic near-term growth of 16.97% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether CYQ is lagging or leading in the industry. View our latest analysis for CYCLIQ Group

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

E-commerce continues to be the fastest growing sales platform for consumer discretionary goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. Over the past year, the industry saw growth in the twenties, beating the Australian market growth of 5.37%. CYQ 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 CYQ may be trading cheaper than its peers.

Is CYQ and the sector relatively cheap?

The leisure sector’s PE is currently hovering around 18x, relatively similar to the rest of the Australian stock market PE of 17x. 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 23.92% compared to the market’s 11.92%, potentially illustrative of past tailwinds. Since CYQ’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CYQ’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

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

Are you a potential investor? If CYQ 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 leisure 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 CYQ’s future cash flows in order to assess whether the stock is trading at a reasonable price.