NWL share price in focus
Founded in 1999, Netwealth is a wealth management business that provides a platform for financial planners to manage client money.
As of 2024, Netwealth has over 140,000 account holders on its platform and over $88 billion of funds under administration (FUA).
Netwealth’s big advantage is its scale and the user-friendly interface which can be accessed through its online platform. Through one simple dashboard, users can buy and sell investments, track performance, and view charts, reports and tax statements.
Let’s talk profits
If you’ve ever tried to read a company’s income statement on the annual report, you’ll know it can get pretty complex. While there are any number of figures you could pull from this statement, three key ones are revenue, gross margin, and profit.
Revenue is important for obvious reasons – everything starts here. If you can’t generate revenue, you can’t generate profit. What we’re concerned about is not so much the absolute number, but the trend. NWL last reported an annual revenue of $255m with a compound annual growth rate (CAGR) over the last 3 years of 20.8% per year.
Moving down the income statement, we then get to gross margin. The gross margin tells us how profitable the core products/services are – before you take into account all the overhead costs, how much money does the company make from selling $100 worth of goods? NWL’s latest reported gross margin was 64.6%.
Finally, we get to profit, arguably the most important figure. Last financial year Netwealth Group Ltd reported a profit of $83m. That compares to 3 years ago when they made a profit of $54m, representing a CAGR of 15.5%.
A pulse check on NWL shares
The next thing we need to consider is the capital ‘health’ of the company. What we’re trying to assess here is whether they’re generating a reasonable return on their equity (the total shareholder value) and have a decent safety buffer. One measure we can look at is net debt. This is simply the total debt minus the company’s cash holdings. In the case of NWL, the current net debt sits at -$112m.
A high number here means that a company has a lot of debt which potentially means higher interest payments, greater instability, and higher sensitivity to interest rates. A negative value on the other hand indicates the company has more cash than debt (a useful safety buffer).
Another figure we can look at is the debt/equity percentage. This tells us how much debt the company has relative to shareholder ownership. In other words, how leveraged is the company? NWL has a debt/equity ratio of 10.3%, which means they have more equity than debt.
Finally, we can look at the return on equity (ROE). The ROE tells us how much profit a company is generating as a percentage of its total equity – high numbers indicate the company is allocating capital well and generating value, while a low number suggests the profits might offer more value if they were paid to shareholders as a dividend. NWL generated an ROE of 62.3% in FY23.
What to make of NWL shares?
With strong revenue growth over the last 3 years, profits trending upwards, and a solid ROE, NWL could be a company to add to your ASX share price watchlist.
Please keep in mind this should only be the beginning of your research. It’s important to get a good grasp of the company financials and compare it to its peers, but it’s also important to make sure the company is priced fairly. To learn more about share price valuation, you can sign up for one of our many free online investing courses.
