With a P/E ratio of 15, is this ASX All Ords share price too low to ignore?

I think this stock still has more to go.

| More on:
A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares

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 All Ordinaries Index (ASX: XAO) share GQG Partners Inc (ASX: GQG) has risen strongly. Does it have a low enough price/earnings (P/E) ratio to buy?

GQG shares have risen 50% in the past six months, soundly outperforming the 6% increase for the S&P/ASX 200 Index (ASX: XJO).

The fund manager was very undervalued before, and I still think the ASX All Ords share is undervalued now, following continued growth.

Why 2024 looks like another good year for the All Ords ASX share

The funds management space is difficult for the industry as a whole. Low-cost exchange-traded funds (ETFs) are capturing a lot of investment inflows.

However, not all fund managers are suffering, GQG is one of the rare ones doing very well.

In the 2023 full-year result it reported net flows of US$10 billion, a 14.7% increase of the average funds under management (FUM) to US$101.9 billion, a 17.4% rise in distributable earnings to US$297.9 million and a 17.3% rise in the dividend per share to US 9.1 cents per share.

Those numbers are impressive, but they tell us about the past. What about the future?

The average FUM for 2023 was US$101.9 billion and closing FUM at December 2023 was US$120.6 billion. That implies an 18% increase of FUM, if the FUM weren't to change. But, it has changed – FUM at January 2024 was US$127 billion (with net inflows of US$1.9 billion), 24.6% more than 2023's average FUM.

Unless there's a sustained crash of the global stock market, it seems GQG is on track to report an increase in earnings (and the dividend) of more than 20%.

Fund managers are typically scalable businesses – if FUM rises by 10%, it doesn't require 10% more employees or 10% more office space to manage that increased capital. Profit margins can rise as FUM grows.

Cheap valuation

If we assume a 20% rise in EPS for the ASX All Ords share in 2024, it would put the GQG share price at under 13 times FY24's possible earnings with a potential dividend yield of 7.6%.

I'm not going to assume that GQG's FUM can grow forever, but for the next year ahead it still looks undervalued with how well its investment funds are performing and how much it's bringing in with net inflows.

If the ASX All Ords share can keep increasing its geographical footprint and winning new clients, it may have an extended growth runway that the market isn't appreciating. The attractive flow of dividends is helping boost returns.

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 Opinions

Happy miner giving ok sign in front of a mine.
Opinions

Which ASX 200 stock offers 'material upside' amid continuing uncertainty over US tariffs?

Blackwattle Investment has identified one ASX 200 large-cap stock that is thriving on the uncertainty.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Financial Shares

2 rising ASX financial shares with 'meaningful upside' still left: fundie

Financials outperformed every other sector in FY25, but there are still buying opportunities left, say these experts.

Read more »

A businessman hugs his computer and smiles.
Opinions

If I could only own one ASX 200 share for the rest of my life, it'd be this one

This is one stock I expect to own forever.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »

Person holding a blue chip.
Opinions

Buy alert! 2 ASX 200 blue-chip shares worth a look now: expert

Dylan Evans from Catapult Wealth has identified two blue-chip shares that he thinks are good buys today.

Read more »

Two happy woman on a couch looking at a tablet.
Opinions

Why I'm excited to see the results of these ASX 200 shares

These stocks could reveal very interesting insights.

Read more »

Young male investor smiling looking at laptop as the share price of ASX ETF CRYP goes higher today
Opinions

Why I just bought this 5.2%-yielding ASX dividend stock and plan to buy even more

This business is one of my favourites for dividends and total returns.

Read more »

A young female investor with brown curly hair and wearing a yellow top and glasses sits at her desk using her calculator to work out how much her ASX dividend shares will pay this year
Opinions

Why I'm still investing in ASX shares during tariff uncertainty

There are a few reasons why I plan to continue investing even during uncertainty.

Read more »