What: You've got to wonder how traders who speculate on stocks rather than invest in companies get on. Even a trade you would think couldn't possibly fail, such as buying the ASX Ltd (ASX: ASX) during a raging bull market, turns out to have, well….failed!
Over the past five years (not long after the bottom of the Global Financial Crisis) the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has rallied 46%, however shares in ASX Ltd have added only 13%. Things don't look much better over the past 12 months either, with the ASX Ltd down 4.5% versus the index which has gained 10.5%.
So what: The underperformance begs a question. Are the best days of the ASX's business behind it, or can the company return once again to the profit growth it was achieving pre-GFC and the high multiple and share price of $60 which came along with it.
Now what: With the shares trading at $36.35 and the company forecast to earn 197.3 cents per share – which is roughly in line with its earnings per share (EPS) for the past five years – the ASX is trading on a forecast price-to-earnings (PE) ratio of 18.4. This compares with a historic PE of 32.2 which it reached in December 2007 when the share price hit $60.
Based on the near-term growth outlook, it would seem that a very significant increase in EPS, or a much rosier view of valuations is required before there is any chance of the ASX returning to $60 a share.
