Every so often, there is a period of time when the market freaks out and S&P/ASX 200 Index (ASX: XJO) share prices slump. The recent tariff-induced decline hasn't reached COVID-19 or GFC crash levels, but it's a large, rapid decline where valuations have sunk.
When these declines happen, it's a great chance to buy excellent businesses at prices we haven't seen for months or even years.
I've been calling out a number of stocks that I see as opportunities. There's one business that particularly attracts me and I'm planning to make my next investment. That is, when I'm able to, assuming prices haven't soared by then.
Pinnacle Investment Management Group Ltd (ASX: PNI)
This business has been one of the hardest hit over the last few months. As the chart below shows, the Pinnacle share price has fallen by 40% since 5 February 2025.
For investors who don't know this business, it invests in fund managers (called 'affiliates'). This allows them to grow by taking a stake in them and offering various services including compliance, finance, legal, fund administration, technology, seed money for funds and working capital.
It's somewhat understandable why the ASX 200 share has fallen so far because a key revenue and profit metric for the business is funds under management (FUM) – that's how much money the fund managers are managing.
A falling global and ASX share market likely translates into declining FUM for Pinnacle. This means lower revenue and lower profit.
However, historically, share markets have risen over time because the underlying profits of businesses have risen. Investors usually value a business based on how much profit it's making.
While the market may be hurting right now, I don't think it's going to fall forever. The six months to 31 December 2024 showed how the company was seeing stronger conditions after the headwinds of high inflation in FY23 and FY24.
In the FY25 half-year result, the company reported total net inflows of $6.7 billion, total affiliate FUM of $155.4 billion (up 15.7% over the six months excluding acquired FUM, or up 41% with acquisitions). Net profit grew 151% to $75.7 million (partly thanks to outperformance fees).
I think the above numbers demonstrate the business's ability to deliver strong returns when economic conditions are improving.
The huge decline in Pinnacle's share price suggests it's going through bad economic conditions already. I think it's undervalued on a long-term outlook and, in my view, it could bounce back significantly once confidence starts improving again.
