The Class Ltd (ASX: CL1) share price has fallen by 25% to $2.67 over the last two months, so it's well worth considering if it's a buy today.
Class was my monthly top pick for December when it had fallen to $2.35 but it's grown by 13.6% since then, however it could still be worth an investment.
The business offers cloud accounting for self-managed superannuation fund (SMSF) administrators.
The Class share price has fallen due to a few different reasons.
Class reports its growth of SMSF portfolios each quarter. This growth has always been positive, but it has slowed down dramatically in recent times. In its update for the three months to 30 September 2017 Class reported that the number of SMSF accounts increased by 6,232 to 146,922 and the market share is now 25% of the estimated 598,000 SMSFs.
The market had gotten used to Class reporting growth of SMSFs of above 10,000 each quarter. The government has been messing around with what SMSFs are required to report, which partly explains why Class' short-term growth has slowed. Class' competitor, BGL, is ramping up its cloud product which could also explain the slowdown.
However, if Class' understanding of the situation is correct then growth could return to normal in future quarters.
In the 30 September 2017 update Class also gave an update for its Class Portfolio product. This product is for non-SMSF portfolios like family trusts. Class Portfolio grew by 12% to 3,631 accounts to 30 September 2017.
Class has an impressive list of financial statistics. In FY17 it grew its earnings before interest, tax, depreciation and amortisation (EBITDA) margin from 44.5% to 48.4% and the net profit after tax (NPAT) margin from 25.8% to 27.6%. The balance sheet is in very good shape with $19.4 million cash (and equivalents) whilst having no debt.
Foolish takeaway
Class is trading at 33x FY18's estimated earnings with a grossed-up dividend yield of 2.74%. Although the price/earnings ratio still looks expensive I think Class is now at an attractive price for a long-term buy.
