Pinnacle Investment Management (ASX: PNI) shares rallied 6.0% at Wednesday’s open following a stellar first-half FY25 result but quickly lost all gains within the first 30 minutes of trade.
This sharp reversal came despite the company delivering a clean sweep of better-than-expected numbers, including:
Net profit after tax up 151% to $75.7 million (20% beat vs. consensus)
Diluted earnings per share up 140% to 36.7 cents
Interim dividend up 112% to 33 cents per share
Aggregate funds under management to $155.4 billion, up 41.1% compared to the prior half
So why did the stock erase its early gains despite these strong results? Let’s break down the key factors behind the fade.
Pinnacle has been one of the best-performing stocks on the S&P/ASX 200, soaring 137% over the past year. This rally has been driven by accretive M&A, net inflows, performance fees, and operating leverage.
However, the share price surge has pushed Pinnacle’s price-to-earnings (P/E) ratio from 25x a year ago to 55x today. UBS notes that the stock is trading at 34x FY27 forecasted earnings, representing a 189% premium to the market, well above its five-year historical premium of 148%.
Put simply, Pinnacle is expensive.
For context, back in February 2024, Pinnacle also posted an earnings beat. But at the time, the stock had been trading sideways for two years at a more reasonable valuation. On its reporting day (2-Feb-24), Pinnacle shares opened 2.5% higher and closed the session up 8.6%—a stark contrast to today’s price action.
On 21 November 2024, Pinnacle raised $400 million at $20.30 per share, a 5.3% discount to its previous close. The raise accounted for 9.7% of existing shares and was used to fund strategic investments in VSS Capital and Pacific Asset Management, as well as seed new strategies for its affiliates.
Heading into this result, those newly issued shares were already up around 24%, creating a potential liquidity event for investors to lock in profits.
One notable comment from Pinnacle’s earnings release pointed to ongoing investor caution toward equities:
"We have still not seen a significant improvement in appetite for equities amongst institutional clients or the increasingly sophisticated wholesale market, with our flows remaining dominated by fixed income, credit and other private markets assets (tailwinds for these asset classes are in fact strengthening)."
With Pinnacle’s flows skewed toward non-equity assets, the broader market’s tepid sentiment toward stocks may also be weighing on the share price reaction.
Despite the stock’s pullback, analysts remain cautiously optimistic.
Macquarie reiterated an Outperform rating, lifting its price target from $26.70 to $27.37
UBS maintained a Neutral rating, raising its target from $22.50 to $25.20
"With PNI trading at 34x FY26 consensus estimates, it is delivering on high expectations, and we remain Neutral on valuation grounds," UBS analysts said in a note on Wednesday.
Pinnacle delivered a strong earnings beat, but with its lofty valuation, recent capital raise, and cautious market sentiment toward equities, investors saw an opportunity to take profits rather than chase the rally. It will be interesting to see how the stock trades once the volatility subsides.
Get the latest news and insights direct to your inbox