The Washington H Soul Pattinson & Company Ltd (ASX:SOL) share price has risen 6.3% since the start of 2024. Also in 2024, the Netwealth Group Ltd (ASX:NWL) share price is 1.6% away from its 52-week high. This article explains why it could be worth popping SOL and NWL shares on your watchlist.
SOL share price in focus
Founded in 1903, Washington H. Soul Pattinson (WHSP) is an investment company with a diversified portfolio of assets across a range of industries and asset classes.
Some of SOL’s largest holdings include stakes in other well-known publicly listed companies such as TPG Telecom (ASX: TPG), New Hope Group (ASX: NHC) and a cross-shareholding in Brickworks (ASX: BKW).
SOL’s mission is to deliver superior returns to its shareholders by creating capital growth and steadily increasing dividends as a holding company. It’s the second-oldest publicly listed company on the ASX and has a strong track record of capital growth and dividends. In fact, it’s never missed a dividend payment since listing in 1903! It should be thought of as a family-run LIC, for the benefit of all shareholders (who are deeply aligned).
Since we consider Washington H Soul Pattinson & Company Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY24, Washington H Soul Pattinson & Company Ltd had an ROIC of 4.70% and revenue has compounded at -3.3% in recent years. If a mature business struggles to consistently hit 10% ROIC it could be a sign the business may not be investing its capital well. This is just a rule of thumb we follow.
NWL shares
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.
SOL share price valuation
We would consider SOL to be a ‘mature’ or ‘blue-chip’ business, so some of the metrics that might be important to us include the debt/equity ratio, average yield, and return on equity, or ROE. For FY24, Washington H Soul Pattinson & Company Ltd reported a debt/equity ratio of 8.5%, meaning the company has more equity than debt.
Over the last 5 years, SOL has delivered an average dividend yield of 2.4% per year. This is important to note if you’re looking for income from your investments.
Finally, in FY24, SOL reported an ROE of 5.6%. For a mature business you generally want to see an ROE of more than 10%, so SOL’s returns are a bit less than what we’d expect.
As a growth company, some of the trends we could look for from NWL shares include revenue growth, profit growth, and return on equity (ROE). Over the last 3 years, NWL has increased revenue at a rate of 20.8% per year to hit $255m in FY24. Meanwhile, net profit has risen from $54m to $83m. NWL’s last reported ROE was 62.3%.
Please keep in mind that context is important. These metrics give us some indication of company performance, but we need a lot more info to work out the value of SOL or NWL shares. To learn more about valuation, I’d recommend signing up for one of our free online investing courses.
