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Janus has generated free cash flow of almost $250 million per year over the last decade, and there have been some bad years for the investment industry within that period (e.g. the tech crash, and the recession of 2008 and 2009). Despite this, Janus has a market cap of just $1.2 billion and has more cash than it has debt.
The problems causing Janus' stock price to drop appear to be temporary. First, Janus fell with the rest of the market, as correlations increased as macroeconomic issues appeared to take center stage.
But Janus generates fees for assets under management and performance. Therefore a drop in the stock market translates directly into lower revenues. But even in this environment, Janus still generated free cash flow of about $45 million in the 3rd quarter; annualized, this still translates into a yield of 15% under pretty poor market conditions!
Finally, Janus is also suffering some outflows as a result of poor short-term relative performance in some of its equity funds. Investors flock to the funds with the most impressive recent returns. But just as quickly as a fund (or group of funds) can underperform, it can outperform. Furthermore, Janus offers a range of funds, giving it the ability to grow the successful ones and shutdown the ones with poor market appeal. As such, these outflows due to under-performance are likely to be only temporary.
There is no question that the mutual fund industry has come under attack. Though mutual funds tend to underperform the market, and are more expensive than their ETF cousins, there is no question that there is a market demand for them from certain investor groups. Janus is a profitable company that allows investors to buy into this industry at what appears to be a very attractive price.
Disclosure: Author has a long position in shares of JNS
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