The stock of Affiliated Managers Group (NYSE:AMG, 30-year Financials) is believed to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $159.41 per share and the market cap of $6.7 billion, Affiliated Managers Group stock is estimated to be significantly overvalued. GF Value for Affiliated Managers Group is shown in the chart below.
Because Affiliated Managers Group is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 3.3% over the past three years and is estimated to grow 0.23% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Affiliated Managers Group has a cash-to-debt ratio of 0.48, which ranks worse than 72% of the companies in Asset Management industry. Based on this, GuruFocus ranks Affiliated Managers Group's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Affiliated Managers Group over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Affiliated Managers Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2 billion and earnings of $4.35 a share. Its operating margin is 30.09%, which ranks better than 68% of the companies in Asset Management industry. Overall, GuruFocus ranks the profitability of Affiliated Managers Group at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Affiliated Managers Group over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Affiliated Managers Group is 3.3%, which ranks in the middle range of the companies in Asset Management industry. The 3-year average EBITDA growth rate is -8.9%, which ranks in the middle range of the companies in Asset Management industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Affiliated Managers Group's ROIC is 7.82 while its WACC came in at 8.52. The historical ROIC vs WACC comparison of Affiliated Managers Group is shown below:
In short, The stock of Affiliated Managers Group (NYSE:AMG, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Asset Management industry. To learn more about Affiliated Managers Group stock, you can check out its 30-year Financials here.
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