OFX Group: A Contrarian Play Amid Institutional Crosscurrents?

Institutional investors hold 67% of OFX Group Limited (ASX:OFX), a dominant stake that underscores the stock's reliance on large fund movements. Yet, the company trades at a P/E ratio of just 7.5x, far below the 11.9x sector average and 17.4x market multiple, creating a stark valuation disconnect. For contrarian investors, this raises a compelling question: Could OFX's undervaluation relative to its institutional heft signal a buying opportunity if earnings stabilize?

The Institutional Ownership Puzzle

OFX's ownership structure is highly concentrated, with the top 8 shareholders controlling 53% of the company. Key institutional players include Australian Ethical Investment Limited (9.04%), Selector Funds Management Limited (9.03%), and Vanguard entities, which collectively reduced their stakes by 3.83% in the past quarter. This shift reflects cautious sentiment, as institutional holdings have declined alongside a 48.6% drop in the stock price from its October 2024 peak of $2.38 to $0.74 in June 2025.

The exodus of major funds like Dimensional Fund Advisors (down 10%) and BlackRock's iShares Edge ETF (down 6%) highlights a broader trend. However, this institutional skepticism contrasts with insider activity: CEO John Malcolm owns 1.5% of shares, and insiders collectively hold $12 million (5.6% of the $179 million market cap). Notably, Malcolm bought 190,510 shares at $1.30 in November 2024, suggesting confidence in the stock's long-term value.

Valuation: A Discounted Multiple with Contrarian Potential

OFX's P/E ratio of 7.5x (vs. the sector's 11.9x) signals a significant valuation discount, even after recent declines. Analysts estimate a fair value of $2.91 per share, implying a 74% upside from current levels. This gap is even starker when compared to peers like EML Payments (P/E 33.8x) and Tyro Payments (P/E 25.5x), though OFX's smaller scale and different business model temper direct comparisons.

The disconnect could reflect market skepticism about OFX's growth trajectory. The company reported $29.87 million in NPAT for FY2024, with modest 10.7% earnings growth projected for FY2026. However, its PEG ratio of 1.6x—within a reasonable range given its low P/E—hints at undervaluation relative to growth prospects.

Risks and Considerations

• Institutional Liquidity Risk: A major holder like Vanguard or DFA exiting could trigger further declines.
• Earnings Volatility: OFX's reliance on foreign exchange and payments services makes it sensitive to macroeconomic shifts.
• Insider Influence Limits: While insiders hold a small stake, their confidence in the business may not offset broader institutional pessimism.

The Contrarian Case: Buy the Dip?

The 67% institutional ownership creates a “double-edged sword”: while large funds' exits have pressured the stock, their presence also signals a baseline level of confidence in OFX's business model. The 7.5x P/E and $2.91 fair value estimate suggest the stock is pricing in worst-case scenarios, offering a margin of safety for investors willing to bet on stabilization.

Actionable Takeaway:
- Buy if: Earnings for FY2026 meet or exceed expectations, and institutional selling slows.
- Avoid if: The P/E compression continues due to missed growth targets or sector-wide declines.

Final Analysis

OFX Group presents a classic contrarian scenario: a stock with high institutional ownership, a deeply discounted valuation, and insider confidence, but also execution risks. For investors with a long-term horizon, the 74% upside embedded in the $2.91 fair value could outweigh near-term volatility—if earnings stabilize. Monitor institutional flows closely; a pause in selling could signal a turning point.

As the adage goes, “Be greedy when others are fearful.” OFX's valuation and ownership dynamics might just offer such an opportunity.