Prediction: The ASX 300 stock with 50% upside!

A top fund manager is bullish about this stock.

| More on:
child in superman outfit pointing skyward, indicating a rising share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 300 Index (ASX: XKO) stock G8 Education Ltd (ASX: GEM) may be a contender to deliver good returns, according to a lead portfolio manager from Wilson Asset Management.

G8 Education describes itself as one of Australia's largest providers of quality early childhood education and care. It has more than 400 early learning centres across 21 brands.

As Oscar Oberg recently discussed in the Australian Financial Review, the childcare centre operator is an ASX 300 share that WAM is most bullish about.

Reasons to like the ASX 300 stock

WAM's Oberg thinks G8 Education shares are the most undervalued by the market.

He acknowledged the company's "struggle" with negative earnings per share (EPS) revisions and debt issues over the last decade. The company had even conducted a capital raising during COVID-19 in 2020.

WAM's interest in G8 Education was piqued after the company appointed its new CEO, former BIG W managing director Pejman Okhovat.

According to the fund manager, Okhovat's strategy for G8 Education was "relatively straightforward." The company would aim to boost occupancy, stabilise costs, and divest underperforming childcare centres.

Oberg noted that G8 Education had a "very strong balance sheet" and could buy back between 5% to 10% of the shares on issue.

WAM's research suggests this strategy can lead to the ASX 300 stock delivering organic EPS growth of between 10% to 15% each year over the next five years.

G8 Education share price valuation and upside

On WAM's numbers, the G8 Education share price is valued on a forward price/earnings (P/E) ratio of 12 times, which Oberg described as "cheap".

The fund manager believes the strong level of organic growth can deliver a re-rating to the G8 Education shares and raise the P/E ratio. It anticipates the G8 Education share price will have a "50% upside" in the next 12 to 24 months.

WAM's positivity on the ASX 300 stock gives it a "large weighting" in the portfolio.

Commentary on the economic conditions

Oberg also had this to say about current economic conditions (courtesy of AFR):            

Conditions are quite patchy, especially for small-cap companies. This financial year represents the third year in a row that small caps will underperform the Australian market.

We do think that the tide will turn as soon as we see interest rates decline, and we saw an example of this from December 2023 to March 2024 where small caps had a great period.

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.

More on Share Market News

Man on a laptop thinking.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a Garfield-eque start to the trading week this Monday.

Read more »

A young boy with a sombre face looks down at the zip fastener at the bottom of his jacket as he concentrates on unfastening the clasp.
BNPL shares

What's happening with Zip shares on their first day back aboard the ASX 200?

After a strong eight month run, Zip shares are once again part of the ASX 200.

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Healthcare Shares

If you invested $5,000 in this ASX pharmaceuticals stock a year ago, you'd have $34,711 now!

Just how lucky have investors been with this stock?

Read more »

A boy stands firm on a rocky cliff holding a rocket in each hand and looking up toward the sky, anticipating flying into space.
Share Gainers

Why these 2 ASX 200 shares are surging amid today's market meltdown

Investors are bidding up these two ASX 200 shares despite the wider market meltdown. But why?

Read more »

A woman with strawberry blonde hair has a huge smile on her face and fist pumps the air having seen good news on her phone.
Share Gainers

Why 29Metals, Immutep, Insignia, and Perenti shares are pushing higher today

These shares are avoiding the market selloff. But why?

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Share Market News

This ASX lithium stock is down 79% in 2024, and a director just bought 300,000 shares

This lithium director just bought the dip in a big way.

Read more »

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after ASX 200 shares fell rapidly today and appear to be heading into a stock market crash
Share Fallers

Why DroneShield, South32, Whitehaven Coal, and Woodside shares are tumbling today

These shares are under pressure on Monday. But why?

Read more »

A young woman slumped in her chair while looking at her laptop.
Share Market News

Why is the ASX 200 starting the week with a whimper?

The ASX 200 is tumbling on Monday. But why?

Read more »