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Should you buy the shares of this fintech star after its quarterly update?

The Praemium Ltd (ASX: PPS) share price has had a disappointing start to the week.

In morning trade the investment administration provider’s shares are down 2.5% to 93.5 cents following the release of its quarterly update.

What was in the update?

According to the release, in the September quarter Praemium’s funds under administration (FUA) reached $8.6 billion. This was a 3.6% increase on the end of FY 2018 and driven by combined quarterly gross inflows of $645 million, which was the fifth highest on record.

Australian gross inflows were $466 million, while International gross inflows were $179 million.

Other highlights during the quarter included its growing superannuation footprint and progress with two signature development projects.

The former included FUA in the Australian retail superannuation offering surpassing $1 billion for the first time. Whereas the latter includes the evolution of Praemium’s leading SMA platform to a Unified Managed Account platform.

Why have its shares dropped lower?

Investors may be slightly disappointed by the modest quarter-on-quarter growth in FUA. Although FUA is up 29% from this time last year, it is only up 3.6% quarter-on-quarter.

If we were to annualise that growth rate it would come to 14.4%, which is significantly lower than the FUA growth of 35% it achieved in FY 2018.

Any slowdown in its growth rate could be a worry due to the lofty premium its shares trade at. At present its shares are changing hands at 134x earnings.

Should you invest?

I’m a big fan of Praemium but this quarterly update was a touch softer than I had expected.

Because of this, I would suggest investors hold fire on an investment for now and wait to see how the next quarter goes. In the meantime, fellow fintech shares Bravura Solutions Ltd (ASX: BVS) and Hub24 Ltd (ASX: HUB) might be worth a closer look.

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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. 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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