Up 15% in a month: Are Magellan shares still cheap enough to buy?

The decision is split among brokers – still.

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Magellan Financial Group Ltd (ASX: MFG) shares have been in focus lately, with the stock trading a whopping 15.3% higher over the past month.

Shares in the formerly embattled fund manager are currently swapping hands at $9.55 per share, up 5.29% from the open on Friday.

But is it time to snap up these shares, or is it too early in the turnaround story? Here's a look.

Magellan shares? Not for Macquarie

Investors have bought Magellan this week after its monthly funds flow update showed outflows drying up. This was coupled with a significant lift in performance fees for FY24 to $19 million.

These performance fees could signify a stronger performance of its investment strategies.

Investment bank Macquarie remains cautious about Magellan, keeping its 'underperform' rating despite the recent share price surge.

Analyst Brendan Carrig argued that Magellan's funds management business was "still not cheap enough", and that it might be "too early in the turnaround" to buy just yet, according to The Australian.

With the funds management business trading on about 11.1 times FY25 earnings, the market is already pricing in a recovery, but investment performance hasn't improved enough to drive a recovery in flows.

Carrig warns that retail outflows might increase in H1 FY25, as a mammoth $3.4 billion of close-ended funds under Magellan's management is set to become open-ended.

Open-ended funds allow for ongoing and new contributions, whereas closed-ended funds do not allow for new investments. It remains to be seen what effect this will have on Magellan's assets.

Fund outflows beginning to slow

Magellan shares were in favour this week following an update on the company's funds under management (FUM) for June. The stock is up more than 7% since Monday.

The latest FUM update showed that new money flows were flat compared to the previous month. Retail investors pulled a net $0.2 billion out in June, but institutional flows were a net positive $0.2 billion.

This brings institutional FUM to $19.6 billion by the end of June.

Insiders have also been active on Magellan shares lately. Deputy Chair Hamish McLennan recently sold nearly $545,000 worth of his shares, more than 60% of his interest in the company.

On the flip side, Director Cathy Kovacs bought $100,000 worth of Magellan shares.

Analysts have mixed views on Magellan shares. Macquarie's reiterated underperform rating contrasts with UBS's bullish buy rating and target of $10.25.

Morgans rates the stock as a hold with a target of $9.67. According to CommSec, the consensus of analysts estimates rates Magellan a hold.

Should you buy Magellan shares now?

While the recent price increase and positive FUM trends are encouraging, it's crucial to consider the mixed analyst views and the potential for increased retail outflows in the near term.

Based on this, it would be wise to watch for further improvements. Either way, remember to conduct your own due diligence and consider your own personal risk tolerances in any decision-making.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. 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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