Gale Pacific Limited (ASX:GAP), a AUDA$102.59M small-cap, is a retail company operating in an industry which has experienced a structural shift in terms of digitalization. Growth has been a result of investment in streamlining distribution and improving website platforms to accommodate the shift in spending. Retail analysts are forecasting for the entire industry, a positive double-digit growth of 16.69% in the upcoming year , and a strong near-term growth of 22.13% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Gale Pacific is a laggard or leader relative to its retail peers. Check out our latest analysis for Gale Pacific

What’s the catalyst for Gale Pacific’s sector growth?

E-retailing is expected to remain the fastest growing sales channel, shifting the retail landscape. Significant number of retail store closures and bankruptcies were an indication of both changing consumer preferences and rising online competition. Over the past year, the industry saw growth of 3.70%, though still underperforming the wider Australian stock market. Gale Pacific 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 retail peers. As the company trails the rest of the industry in terms of growth, Gale Pacific may also be a cheaper stock relative to its peers.

Is Gale Pacific and the sector relatively cheap?

Retail companies are typically trading at a PE of 17x, relatively similar to the rest of the Australian stock market PE of 18x. 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 24.42% compared to the market’s 11.86%, potentially illustrative of past tailwinds. Since Gale Pacific’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Gale Pacific’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

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

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

For a deeper dive into Gale Pacific’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other retail stocks instead? Use our free playform to see my list of over 200 other retail companies trading on the market.

To help readers see pass 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.