Macquire telcos has highly promising potentials for steady growth and expansion. src
A windfall of earnings is sweeping through high-growth industries
The recent Central Bank fueled rally in equity prices has raised eyebrows in many quarters, with many experts reacting with cautious optimism. At the eye of the storm are companies in high-growth industries like healthcare and technology.
Stakeholders of Macquarie Telecom (ASX:MAQ), a conglomerate of telecom investors, have been enjoying a windfall of equity earnings over the past few weeks. Australian Foundation Investment Company (AFIC) managing director Mark Freeman is among prominent voices describing the noticeable earning streak as a typical situation where “money gets forced into stocks”, driving remarkable gains in these key growth sectors.
“[Y]ou are seeing more price appreciation out of those sectors and now you’re getting valuations pushed to we think now some pretty robust [levels],” said Mr. Freeman during an interview with The Australian Financial Review.
The remarkable journey of Macquarie Telecom’s share price
Macquarie Telecom’s key performance indices compared to industry averages. src
Five years ago, Macquarie Telecom’s share price started from a negative quadrant. But over time, it has navigated into positive territories, with astonishing growth rates recorded over the past few months. The recent surge in Macquarie’s share prices has been powered by strong signals of robust share earnings growth.
In the last few weeks alone, the firm has recorded some 38% gains in stock prices. That came off the heels of a 15% gain recorded in the preceding 3 months, and has culminated in a terrific growth rate of 93% in the last fiscal year that ended this June. In the past few years, the company has managed to multiply its share prices by nearly 5 folds.
Indeed, the company has all the markings of a high-growth, blue-chip telco that most savvy investors would want to buy and hold for years to come. Normally, stocks that have recently experienced rapid surges in prices are usually less attractive to savvy investors who might be wary of getting in at the tail end of the wave when the prices begin crashing. Investors are usually wary of stocks with low Price to Earnings (PE) earnings. Share prices usually grow proportionately to increases in share earnings, and a low PE shows that earnings growth is likely at an advanced stage that’ll likely not lead to further increases in share prices.
However, Macquarie’s P/E ratio is relatively much higher compared to those of most competitors. The average P/E ratio in the industry currently stands at 31.6. But with a P/E ratio of 54.86.
Macquarie stocks are much more appealing to savvy long term investors compared to many other competing shares. That ratio grew from 39.9 to 54.85 within just a few weeks. The company’s higher-than-average and upward-bound P/E ratio is a clear sign that investors are more willing to bet on its future growth than on those of many others in the industry.
However, stock prices can change abruptly and frequently due to a variety of lesser-known short-term factors. Experts are calling for cautious optimism among investors clamoring for high-yield stocks like Macquarie’s. Investors need to consider factors like the extent to which the company’s growth depends on the founder or owner.
“We call them owner-driver businesses,” Mr. Freeman said. “It’s where individuals usually the founder of the companies have large equity stakes and they run it like it’s their own money, because it is.” He also noted that in some instances, the influence of the founder/owner can be “watered down”, denting the prospects of long-term growth for the company.
Besides that, investors also need to investigate the number of shares that the directors and board members currently own, but Macquarie’s case isn’t that bad for investor either.
The bottom line
Macquarie Telecom Group has all the markings of a high-growth company, but its current stock market performance is a reflection of what investors think about its potentials for future growth, and not actually the current level of value and earnings that the stock is providing. The company also has a modest debt profile, which further fuels optimism among investors that it can pull off sustainable levels of growth and expansion over the next few years.
While some short-term factors may prevail over the stock prices, now’s a perfect time to pick up Macquarie stocks as nearly every key indicator points to a steady growth in price levels in the near future.