A Look At SIV Asset Management Limited (ASX:SAM) And The Financial Sector

SIV Asset Management Limited ( ASX:SAM ), a AUDA$937.49K small-cap, operates in the capital markets 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 positive double-digit growth of 15.73% in the upcoming year, and a whopping growth of 39.10% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Today, I'll take you through the sector growth expectations, as well as evaluate whether SAM is lagging or leading in the industry. See our latest analysis for SAM

What's the catalyst for SAM'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. In the previous year, the industry endured negative growth of -3.30%, though still outperfoming the wider market growth of -4.59%. SAM lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its capital markets peers. As the company trails the rest of the industry in terms of growth, SAM may also be a cheaper stock relative to its peers.

Is SAM and the sector relatively cheap?

Capital markets companies are typically trading at a PE of 22x, higher than the rest of the Australian stock market PE of 16x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 8.70% compared to the market's 11.92%, which may be indicative of past headwinds. Since SAM's earnings doesn't seem to reflect its true value, its PE ratio isn't very useful. A loose alternative to gauge SAM's value is to assume the stock should be relatively in-line with its industry.

What this means for you:

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

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