Can ASX Ltd’s share price reach $60?

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.

While the ASX Ltd might not bounce back to its old highs anytime soon, our #1 ASX pick looks as promising as ever.

That's right. It's not too late! The Motley Fool has issued a firm "BUY" rating on this small but ultra promising ASX company... and you can get the name and code FREE right now. Click here for your free copy of "The Motley Fool's Top Stock for 2014."

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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