The ASX Ltd (ASX: ASX) share price has been an impressive performer in 2019.
Since the start of the year the Australian stock exchange operator’s shares have stormed a massive 45% higher.
Is it too late to invest?
According to one leading broker it could be too late to buy the company’s shares.
A note out of Goldman Sachs this morning reveals that its analysts have retained their sell rating but lifted their price target on its shares to $65.11 from $48.20.
Even after this sizeable increase to its price target, it still implies potential downside of almost 25% for its shares over the next 12 months.
Why is Goldman Sachs bearish on ASX Ltd?
Goldman has noted that ASX Ltd’s shares are currently trading at 34x forward earnings, which is 80% above its long-run average and a 105% premium to the ASX 200 average.
And whilst the broker acknowledges that the company is not the only stock exchange operator (globally) which is expensive right now and its high margins mean it should trade toward the top of its global peer set, its notes that “few are trading at levels consistent with ASX” and sees the valuation as excessive.
What would make Goldman positive on ASX Ltd?
As much of the broker’s sell thesis is based on valuation, it advised that it would need to see a sizeable pull back in its share price or an earnings multiple compression to become more positive.
In addition to this, Goldman said: “From an earnings perspective, we could become more positive should greater clarity emerge regarding 1) the revenue opportunity from the near-term data analytics solutions ASX is launching, 2) the medium-term revenue opportunity from Sympli, and 3) the long-term revenue opportunity from ASX’s investment into Distributed Ledger Technology, where we could see some potential for ASX to benefit from a pivot into new verticals.”
But until then, this is one company that appears too rich for Goldman’s blood.
Instead of ASX Ltd, the broker sees Scentre Group (ASX: SCG) and Stockland Corporation Ltd (ASX: SGP) as better options for income investors. Goldman is buy-rated and has $4.72 price targets on both company’s shares.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. 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.