Sears Holdings Corporation (NASDAQ:SHLD), a USD$387.41M small-cap, operates in the retail industry impacted by the digital transformation for all retail channels. Looking at trends for growth in macroeconomic factors such as inflation and interest rates are important when thinking about investing in retailers. Retail analysts are forecasting for the entire industry, a somewhat weaker growth of 9.44% in the upcoming year , and an optimistic near-term growth of 10.59% over the next couple of years. This rate is more than double the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Sears Holdings is lagging or leading its competitors. View our latest analysis for Sears Holdings

What’s the catalyst for Sears Holdings’s sector growth?

E-commerce continues to be the fastest growing sales platform for consumer 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 teens, beating the US market growth of 10.81%. Sears Holdings lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook doesn’t seem to be much better given that analysts are forecasting continued unprofitability going forward.

Is Sears Holdings and the sector relatively cheap?

The retail industry is trading at a PE ratio of 16x, in-line with the US stock market PE of 20x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 14.21% compared to the market’s 10.46%, potentially illustrative of past tailwinds. Since Sears Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Sears Holdings’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? Sears Holdings’s uncertain outlook is a negative for shareholders, with the prospect of negative earnings persisting into the future. If your view of the industry outlook has changed since you bought, now may be a good time to revisit your initial investment thesis. Also, if you’re relatively concentrated in retail, you may want to value Sears Holdings based on its cash flows to determine if it is overpriced based on its current growth outlook.

Are you a potential investor? If Sears Holdings has been on your watchlist for a while, now may not be the time to enter into the stock given its negative future prospect. However, before you make a decision on the stock, I suggest you look at Sears Holdings’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.

For a deeper dive into Sears Holdings’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.