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Why the Class Ltd (ASX:CL1) share price has tumbled lower again

One of the worst performers on the market on Thursday has been the Class Ltd (ASX: CL1) share price.

In morning trade the SMSF platform provider’s shares are down 4.5% to $2.08, stretching their 12-month decline to 42%.

Why is the Class share price tumbling lower?

This morning Class provided the market with its quarterly update for the period ended September 30.

According to the release, Class added just 3,039 accounts during the quarter, lifting the total number of accounts to 172,452. This equates to a rise of 1.8% on the prior quarter.

These total accounts include 166,102 SMSFs on Class Super and 6,350 Class Portfolio accounts.

As a comparison, this time last year the company grew its Class Super accounts by 6,232 accounts or 4.4% on the prior quarter.

Though it is worth noting that management had previously warned that the first quarter of FY 2019 would be slower than normal due to “lodgement over-hang”. It advised that nearly half of the new customers for this quarter signed up in the month of September.

It expects a much stronger second quarter, advising that: “An increase in customer sign-ups late in the period provides momentum heading into the December quarter. SMSFs to be loaded by those sign-ups, along with the launch of our ‘Do More’ sales campaign, are expected to see a repeat of the success we saw in the December quarter last year.”

Should you buy the dip?

Although the company’s shares have lost 42% of their value since this time last year, they are still changing hands at 29x full year earnings.

I think this is very expensive for a company that is only growing its accounts and potentially its revenue at a modest rate.

In light of this, I still believe Class is closer to a sell than a buy and would not be surprised to see its shares drift even lower over the next 12 months unless there is a major improvement in its performance.

As a result, I would suggest investors skip Class and consider fintech companies such as Bravura Solutions Ltd (ASX: BVS) and Praemium Ltd (ASX: PPS).

Alternatively, this popular share has just been declared as a buy after a recent pullback.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Bravura Solutions Ltd and Class Limited. 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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