Australian wealth management firm HUB24 Ltd (ASX: HUB) has made its long-term shareholders very happy. A little over 4 years ago, its shares were worth less than a dollar a pop, but since then their value has skyrocketed well over 1200% to $12.55. At one point earlier this year, HUB24’s shares were selling for as much as $15.55, an all-time high.
But its shares have come off the boil more recently. Despite hitting that all-time high back in May, HUB24’s shares are only up about 5% overall in 2019. Even the company’s record first quarter FY20 results weren’t enough to get the market really excited again. So, after seeing the darling of their portfolios climb steadily higher over the last few years, many shareholders might be left wondering why the HUB24 share price is suddenly so stagnant.
Shareholders were probably expecting that HUB24’s first quarter FY20 results would be the thing to really start the company’s share price motoring along again. And it’s easy to see why: the company’s wealth management platform continued to be the fastest growing in the industry, increasing its market share from 1.3% to 1.5%. It also generated record net inflows of over $1.2 billion for the September quarter – an increase of 94% over the prior comparative period – bringing its total funds under administration to $14.4 billion.
But despite the company’s share price spiking around the time the results were released, it still wasn’t enough to build any significant momentum and HUB24’s shares have only really traded sideways since.
What’s doubly frustrating for HUB24 shareholders is how well the company’s competitors have performed recently. The Netwealth Group Ltd (ASX: NWL) has been volatile this year, but since a correction in August it has recovered valiantly and is now not far off the 52-week high of $10.11 it reached back in May.
Similarly, despite having a tough last few months, Bravura Solutions Ltd (ASX: BVS) has made some significant gains recently after it announced it had acquired financial software company FinoComp.
However, of the 3 companies, HUB24 is the one trading at the highest earnings multiple, even despite its subdued share price performance this year. Based on its full year FY19 results, HUB24 is currently trading at roughly 108 times earnings, whereas Netwealth trades at around 65 times earnings and Bravura trades at just 29 times earnings.
To some degree this makes sense – if HUB24 has the fastest growing platform, its price-to-earnings ratio would most likely be the highest amongst its industry peers. However, there is the possibility that the market is looking at the magnitude by which its multiple exceeds its competitors’ and wondering whether this is justified. This is especially true at a time when other ASX growth stocks with inflated multiples, like WiseTech Global Limited (ASX: WTC), are coming under increased attack from sceptical market analysts and short sellers.
Personally, I like all 3 of HUB24, Netwealth and Bravura, and think they all have plenty of room to grow. As the banking and financial services sectors open up to increased competition in the wake of the Banking Royal Commission, many customers are turning away from traditional wealth management institutions. Innovative money lenders and other fintech disruptors are increasingly seen as viable alternatives to the big banks, and I think this is a great sign for wealth management companies like HUB24, Netwealth and Bravura.
However, at the same time, 2019 has been a pretty topsy-turvy year, with recession fears and trade wars sending shockwaves through the financial markets and putting the squeeze on growth stock valuations. My personal opinion is that HUB24 share price is stuck in a bit of a holding pattern right now, but once its earnings start to catch up to its valuation it will inevitably take off again.
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Rhys Brock owns shares of Bravura Solutions Ltd and WiseTech Global. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Bravura Solutions Ltd and Hub24 Ltd. The Motley Fool Australia owns shares of Netwealth and WiseTech Global. The Motley Fool Australia has recommended Bravura Solutions Ltd and Hub24 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.