The Class Ltd (ASX: CL1) share price has fallen by over 17% since 4th October 2017 from $3.56 to $2.95.
Class is one of the largest self-managed superannuation fund (SMSF) cloud software providers.
The topsy turvy share price could be an opportunity, but the price may still be too expensive for a buy. Here's my bull and bear case for the Class share price over the next year:
Bull case
Class has a brilliant system and helps accountants get the job done a lot quicker than they used to be able to do, allowing the basic work to be profitable. This is why so many SMSFs are being loaded onto the Class software every quarter.
Class should benefit from new rules requiring SMSFs to report in real time. Class is already set up on the cloud and has all the requirements in place.
Class Portfolio is an exciting area of the business. Non-SMSF portfolios could be as big of an opportunity for Class as SMSF ones. In the latest update for September, Class reported that the number of Class portfolios increased by 12% to 3,631 accounts.
Bear case
I expect Class has a solid future ahead of it. It's just hard to justify the current valuation of 44x FY17's earnings. The growth rate of portfolios has slowed from consistently beating the previous year's growth to being slower than the previous year in the last two quarters. A slowing growth rate means less of a hefty valuation in my book.
The growth of the SMSF industry seems to have slowed a lot. Many industry super funds are now offering SMSF-lite options, where the investor can buy individual shares but at a much cheaper annual cost to running their own SMSF. Class may be fighting over a pie that isn't growing much in the future.
Foolish takeaway
I think Class could still be a market-beater over the long-term, but I don't think it's a buy at the current price.
