One of the consequences of depressed share markets, like we have seen in the past year or so, is that the tools that people use to invest become underutilised.
ASX shares of investment companies certainly have fallen out of favour in recent times. Investment technology platforms have not lit the world on fire either.
However, at least with those fintech stocks many investors are hoping for long-term growth as they scale up and gain market share.
The three big names in this platform category are Netwealth Group Ltd (ASX: NWL), Hub24 Ltd (ASX: HUB) and Praemium Ltd (ASX: PPS).
Just this week Shaw and Partners portfolio manager James Gerrish was asked on his Market Matters Q&A which of these stocks he would buy right now:
Disappointing results for Netwealth
Unfortunately 2022 ended poorly for all concerned, but it was especially worrying for the biggest player.
"It was a disappointing quarter for all of the investment platform companies and Netwealth was the hardest hit," Gerrish said.
"While they are still seeing funds under administration (FUA) growth, the $2.1 billion of net inflows fell short of expectations of ~$3 billion."
The miss in expectations was caused by low general investor sentiment for stock markets.
Considering these hiccups, Gerrish feels, the two larger platform providers still seem overvalued.
The Netwealth share price has dipped 24.5% over the past 12 months, while Hub24 has taken a 12.9% hit.
"Overall, Netwealth is a great business, but like its peers, they need scale to justify the ~39x price to expected earnings," said Gerrish.
"Hub24 trades on ~35x."
Last man standing
That leaves the smallest player out of the trio, Praemium.
Compared to its bigger rivals, Praemium shares are going for dirt cheap.
"The smallest of the bunch, Praemium trades on nearly 14x — a discount we don't believe is justified."
The company has seen its shares suffer massive discounting relative to Netwealth and Hub24, almost halving in value over the past 12 months.
Gerrish revealed that he overwhelmingly prefers Praemium out of the platform trio. In fact, his team possesses the shares in its emerging companies portfolio.
But he would also become interested in the other two fintech stocks if they suffered a dip.
"We would consider either into a pullback."
