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Why the Netwealth Group Ltd share price is sinking lower today

Shares in financial services firm Netwealth Group Ltd (ASX: NWL) are down 4.44% to $6.03 today, following the release of the company’s quarterly business update.

Netwealth’s flagship product is an investment management platform for professional wealth advisers that received multiple awards in the past few years. The company also provides investment services and online tools to individual investors.

Netwealth listed on the ASX in November at $3.70 a share, and traded as high as $7.43 on December 29.

As at December 31, Netwealth was the tenth largest platform in the retail investment sector, with a market share of 1.9% in terms of funds under administration (FUA).  Throughout 2017, the company secured 21% of the net inflow of funds into the market, proving a real competitor to more established players like Macquarie Group Ltd (ASX: MQG) and Colonial First State of Commonwealth Bank of Australia (ASX: CBA).

Netwealth continued growing in the March quarter despite the negative market movement, but at a slower rate than in the previous periods. FUA increased 4% to over $16 billion, compared to a 13% increase in the previous quarter. In terms of funds under management (FUM), the company grew 6% to $2.6 million, compared to a 22% growth in the previous quarter.

New features were added to the platform to offer clients an enhanced experience and more investment options in index funds, and additional improvements to online and mobile tools will be adopted in the remainder of the financial year. In April, the company will launch new low cost managed account models to cater to the needs of different client segments.

Foolish takeaway

I think Netwealth is a stock to watch in the fintech space, as it offers a highly rated product to the gigantic retail investment industry, and is constantly working to improve it.

However, today’s results are not enough to justify the company’s valuation. At yesterday’s closing price the stock traded at 55x forward earnings, and even after today’s correction it seems a bit overpriced.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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