After underperforming the market and its peers for the first five months of the year, former market darling WisdomTree Investments, Inc. (NASDAQ:WETF) has started to rise again Morgan Stanley analysts Betsy Graseck and Thomas Whitehead argue that now is a strong point of entry for a company with high margins and a compelling long-term growth story.
“While WETF has come off its recent torrid growth pace in 2014 (-5% annualized outflows ytd vs. roughly +50% average inflows from 2011-13), we view the -30% ytd decline in the stock as a gross overreaction to a pause in an otherwise promising growth story,” they write, upgrading WisdomTree Investments, Inc. (NASDAQ:WETF) to Overweight with a $15 price target.
Early 2014 correction was expected, but probably went too far
WisdomTree Investments, Inc. (NASDAQ:WETF) is primarily a passive asset manager, offering a range of ETF’s and similar financial products. Last year its AUM exploded largely due to the success of its Japan Hedged Equity Fund ETF (DXJ), which had big gains on the back of a Japanese equity rally and a falling Yen, and multiple expansion in the US stock rally. Those gains weren’t sustainable and WisdomTree Japan Hedged Equity Fund (NYSEARCA:DXJ) and WisdomTree’s stock price, which had risen from $6 to just under $18 over the course of 2013, was expected to pull back.
But the more than 40% drop looks to have been an overreaction. WisdomTree Japan Hedged Equity Fund (NYSEARCA:DXJ) and emerging market flows turned positive again in May, and investors are once again focusing on WisdomTree Investments, Inc.’s (NASDAQ:WETF) attractive fundamentals including 2013 gross margin of 75.6% which looks like it will rise for 2014 and a good reputation in a rapidly growing sector (ETFs). WisdomTree has also acquired Boost to give it a head start in the still developing European ETF market, and its history of creating popular investment products (like last year’s DXJ) gives the stock further upside if the company hits on another big winner.
WisdomTree guides for $100 billion AUM in 2019
WisdomTree Investments, Inc. (NASDAQ:WETF) has already started to recover, from a low of $9.11 to $12.25, but Graseck and Whitehead expect that there is still room for it to grow in the near term on top of its long-term value. They set a twelve-month $15 price target on 34x forward PE, discounting their 2016E EPS of $0.49 to next year. WisdomTree hasn’t changed its guidance for a $100 billion AUM target by 2019, and Graseck and Whitehead think the company is on track to make good on that goal.