This low-profile $7.8 billion ASX share has risen 70% in 6 months. I'd still buy it!

This stock has rocketed upwards. I think it can climb even higher.

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The GQG Partners Inc (ASX: GQG) share price has delivered excellent performance over the last six months, surging more than 70%. In comparison, the S&P/ASX 200 Index (ASX: XJO) has gained around 9% over the same time period.

Despite the huge rise in the GQG share price, I still think it's a long-term opportunity due to the progress the business is making and what I believe is still a good valuation.

The fund manager, based in the US, offers clients a variety of different investment strategies including US shares, emerging market shares, and global shares. It also offers investment options like dividend shares.

There are a few reasons I'm still excited about this company.

Solid growth rate

GQG's growth is reliant on an increase in its funds under management (FUM).

The company's main investment strategies have outperformed their respective benchmarks, which helps organically grow the FUM and also helps attract more FUM from clients.

As of 31 May 2024, GQG's FUM had reached US$150.1 billion, up from US$120.6 billion at 31 December 2023. That's an increase of 24% in just five months.

In the five months to May 2024, the ASX All Ords company experienced net inflows of US$9.1 billion – it's seeing a lot of extra client money flowing in, which is compelling and suggests inflows could continue at a decent rate in the coming months.

The business charges minimal (or no) performance fees via its funds, so nearly all of its revenue comes from management fees. FUM growth is key to delivering revenue growth.

Operating leverage

Fund managers can deliver rising profit margins as they grow because their costs may not rise as much as revenue.

For example, a funds management business doesn't need an additional 10% more people or a 10% bigger office if its FUM grows by 10%.

The business has rapidly grown in the last two years, so it has increased its expenditure to reflect the global fund manager it has become, including geographic expansion (such as Australia). But, I believe operating leverage will be displayed in the next few years and the company's profit margins can increase.

In GQG's 2023 result, net revenue rose 18.5% and net profit after tax rose 18.7%.

Low earnings multiple

Fund managers don't usually trade on a high price-to-earnings (P/E) ratio, so we're able to buy the earnings at a reasonable multiple compared to some other sectors.

GQG is valued at 16x FY23's distributable earnings and the fund manager has grown significantly since FY23. Its average FUM for FY23 was US$101.9 billion – the ASX share's FUM (as at May) is currently 47% higher than this, suggesting pleasing earnings growth over the next 12 months.

The company is committed to a dividend payout ratio of 90% of its distributable earnings. Based on Commsec's dividend estimate for FY24 and FY25, GQG is valued at 13x FY24's estimated distributable earnings and 12x FY25's estimated earnings.

Good dividend

GQG is predicted to pay an annual dividend per share of 18.2 cents in FY24 and 19.9 cents per share in FY25, translating into forward dividend yields of 6.9% and 7.5%, respectively (GQG's financial year runs on the calendar year, so the FY24 annual dividend is still a prediction).

While these are not the biggest dividend yields on the ASX, I think they could be among the better yields from a company that's still growing at a decent pace.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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