The S&P/ASX All Ordinaries Index (ASX: XAO) stock GQG Partners Inc (ASX: GQG) looks like a hidden gem to me, considering its price and growth prospects.
Everyone wants to buy investments for less than they're worth. The price-earnings (P/E) ratio is one of the easiest ways to evaluate a business because it tells us simply what multiple of earnings the business is trading at.
If the P/E ratio is relatively low and the earnings growth rate is relatively high, then that investment could be a winner.
I'm going to tell you why I think the ASX All Ords stock GQG is a top investment option.
Low P/E ratio
Firstly, let's look at the valuation of this funds management business, which is headquartered in the US.
Seeing as GQG's 2024 financial year follows the calendar year, there are still two months left to go. I'm going to look at the earnings forecast for FY24.
According to the Commsec, GQG is projected to make 20.5 cents of earnings per share (EPS) in 2024. At the current GQG share price, that puts the P/E ratio at just 14.47.
Undervalued
I believe GQG is undervalued because of the growth rate that it's achieving.
Firstly, I will mention that fund managers do normally trade on a lower earnings multiple than sectors like technology or industrials. But, because of the profit growth the ASX All Ords stock is delivering, I think it's cheap.
Nearly all of GQG's revenue is made from management fees managing client money – how much money it manages for clients is important for fee generation – rather than performance fees, which can be unpredictable and volatile.
In FY23, the business reported that its average funds under management (FUM) grew by 14.7% to US$101.9 billion. In the HY24 result, the business said its average FUM was US$139.5 billion.
At 30 September 2024, GQG had FUM of US$161.6 billion – 15.8% higher than the FY24 half-year result. That shows the reported average FUM figure can continue rising for at least the next two six-month results.
If GQG's funds can keep delivering pleasing returns for investors, their value should increase, providing a natural boost for GQG's FUM, even if FUM inflows (new money put in by clients) reduce.
However, net inflows remain strong – in the nine months to September 2024, GQG experienced net inflows of US$17.4 billion. That year-to-date net inflow figure represents more than 10% of its overall September FUM figure. This provides a strong tailwind for FUM and earnings.
Pleasing dividends
Not only could the ASX All Ords stock deliver capital growth, but it's also providing a lot of passive income too. Dividends can be an important element of overall returns, and GQG doesn't need to hold onto much capital to keep growing and managing more FUM.
The business is committed to paying 90% of its 'distributable earnings' as a dividend.
The estimate on Commsec suggests that GQG could pay an annual dividend per share of 21.6 cents in FY25, translating into a forward dividend yield of close to 8%. I believe this ASX All Ords stock is very capable of beating the market over the next two years.
