Wisdom Tree Investments (WETF) has seen
some strong net inflows over the past few quarters and has
dramatically increased its assets under management of late. As a
Zacks Rank #2 (Buy), it
is the
Bull of the Day.
Inflows For the ETF Industry
One look at the annual net inflows for the ETF Industry and you
will see that the growth story is back on. There was $177
billion in net inflows in 2008, but the recession cased that
number to slide to $116 billion in 2009. A slight gain was
recorded in 2010 with net inflows reaching $118B in 2010 and they
stay at that level in 2011. Last year, the industry posted and
industry record with $185 billion of net inflows.
2012 Inflows are worth a closer look. The industry saw $53B in
1Q12, followed by $25B in 2Q and then $52B and $55B in quarters
three and four respectively. So as the market improved, the
industry saw a willingness on the part of investors to move shift
their assets from cash. Interestingly, the industry saw a net
inflow for fixed income products of $356B with $52B of that
coming in the form of ETFS. They noted that equities saw a net
outflow of $20B as equity mutual funds saw $153B in redemptions
but there was $133B in net inflows for equity ETFs.
Company Description
Wisdom Tree Investments operates as an exchange-traded funds
(ETFs) sponsor and asset manager. It offers ETFs in equities,
currency, fixed income, and alternatives asset classes. The
company also licenses its indexes to third parties for
proprietary products, as well as offers a platform to promote the
use of Wisdom Tree ETFs in 401(k) plans. It develops index using
its fundamentally weighted index methodology. The company was
founded in 1985 and is based in New York, New York.
WETF Beats Estimates In Two of Last Three Quarters
Dating back to the June 2012 quarter, has beaten the Zacks
Consensus Estimate in two of the last three quarters. The June
2012 quarter saw the company post $0.02, $0.01 ahead of the
estimate for a 100% positive earnings surprise. The following
quarter saw another one cent beat which translated into a 50%
positive earnings surprise.
The most recent quarterly report took place on February first of
this year. The company posted revenues of $24M and EPS of $0.04,
both were in line with the Zacks Consensus Estimates.
Growing Inflows and AUM
The quarterly net inflows for WETF mimic the results of the
broader industry, with a strong 1Q12 followed by a weaker 2Q12.
The most likely reason for the slide was the lower equity markets
in 2Q12. The following two quarters saw a nice rebound to end
the year. For the year 2012, net inflows increased from $3.899B
to $4.732B or more than 21%.
Assets under management have been growing at a dramatic pace. In
2009 they stood at $6B and moved to $9.9B in 2010. Another
increase pushed the number to $12.2B for 2011 and the company
ended the year 2012 with $18.3B in assets under management. That
represents an increase of 50% from the prior year.
WETF Sees Estimates Moving Higher
Aggressive growth investors have to like the every growing
earnings story at WETF. The company has seen the Zacks Consensus
Estimate for 2013 tick higher every month since October when it
was $0.24. The estimate has grown to its current level of $0.35
since that time.
Similarly, estimates for 2014 have also moved higher. Over the
same time period, the Zacks Consensus Estimate has moved from
$0.31 to $0.51. That gives and implied growth rate of 45%, and a
number like that can turn a lot of heads.
Valuation
The valuation picture for WETF shows what you would expect to see
for a fast growing company with great potential for future
earnings. That is code for a high valuation, with the company
sporting a 29x multiple of forward earnings compared to a 13x
industry average. The key to me is the margin story. The
company is posting a pre tax margin of 13% while the industry
average is 12.1%, and that advantage flows down to the bottom
line. The industry average for net margin over the last twelve
months was 5.5% while WETF was able to post 13% net margin. When
you can earn more than 2x the industry average, people will pay
up if there is growth included.
The Chart
A quick look at the stock chart and you can see that the market
has really taken a liking to WETF. The surge in the equity
markets in 1Q13 likely drove in plenty of new assets to the ETF
sponsor and that should translate into higher revenue and
earnings.
Brian Bolan is a Stock Strategist
for
Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
stocks in the portfolio.
Brian is also the editor of Breakout GrowthTrader
a
trading service that focuses on small cap stocks and also carries
a risk limiting strategy.
Follow Brian Bolan on twitter at
@BBolan1
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