Recently it has been a horrifying time to be a Magellan Financial Group Ltd (ASX: MFG) shareholder.
The share price has plummeted more than 70% since last July and has lost 25.5% just this year.
It was once a market darling but now seems like a basket case.
For Switzer Report co-founder Paul Rickard, the calamitous fall in Magellan shares can only be blamed on one thing.
"Fundamentally, it's a story about performance," he told Switzer TV Investing.
"A number of Magellan's investors have realised that it's underperforming its key index. It has been doing so for some time."
Rickard said this is what happens to ASX shares that represent investment businesses.
"The money moves out [of the funds] and that creates its own problems, but of course, it means future earnings are going to be lower."
Magellan has also faced some well-publicised management issues, primarily concerned with the stepping down of its celebrity co-founder Hamish Douglass.
So with the share price at such a heavy discount, is it time to consider buying Magellan shares again?
Has it hit the bottom yet?
Magellan shares look 'super cheap'
Magellan shares closed Thursday at $15.94, which is actually 8.8% up from a week ago.
The target price from the analyst community is still below the current stock price, according to Rickard.
"Analysts have a consensus of $13.50," he said.
"They're worried you're going to see a lot more funds outflow or funds under management moving out of the company — and that's going to affect future earnings."
Rickard admitted that the current stock price is looking very tempting.
"In a value sense, Magellan is looking super cheap. It's trading on a price-earnings multiple of about 6.6 times this year's earnings," he said.
"Even allowing for a big fall in earnings next year because people have seen the funds flow out, it's still only about just under 10 times."
Don't catch a falling knife
Rickard agrees with the analyst community that perhaps Magellan shares haven't quite finished their descent yet.
"There's no argument Magellan is a value stock, but I still think there's maybe more bad news to come," he said.
"Until you see the investment performance back on track, I think it's a watch-and-wait stock."
There is absolutely no rush in chasing a stock that's had a shocker for a prolonged period.
"We always warn people about catching the falling knife," he said.
"Sometimes these things keep falling."
