Founded in 1990, Apollo Global Management Inc. (APO, Financial) is one of the world’s largest alternative asset managers. It went public in 2011.
Apollo currently has $472 billion in assets under management and, during its investor day presentation, announced bold plans to reach $1 trillion in AUM by 2026.
The share price skyrocketed by over 179% in 2020 before correcting down by 31% in October 2021. Value investor Joel Greenblatt (Trades, Portfolio) was buying shares in the first quarter of 2022 at an average price of $65 per share. Since then, it has fallen 17%.
Let’s dive into the business model, financials and valuation to determine if the stock is a potential value opportunity.
Solid business model
Apollo is a leading alternative asset manager focusing on three main business segments:
- Asset Management
- Retirement Services
- Global Wealth Management
The asset management division can be split into three further subsections: yield, hybrid and equity.
Source: Apollo presentation.
Private credit is growing rapidly within the alternatives market. Higher yields are harder to find and, according to JPMorgan Asset Management, “Two out of three investors intend to increase their investment in Private Credit.”
Apollo has achieved a tremendous internal rate of return of 39% since its inception over 30 years ago. The company is expected to deliver $14 billion to limited partners and fund investors over the next two years.
Source: Apollo presentation.
Growing financials
As mentioned previously, the company has bold plans to reach $1 trillion in assets under management by 2026 and more than double its fee-related earnings. Revenue increased by a meteoric 156% in 2021, from $2.3 billion to $5.9 billion. Net income more than doubled, from $900 million to $1.9 billion.
The company operates at a healthy gross margin of 41% and strong operating margin of 33%, which is higher than the average of the software industry (25%).
Apollo’s balance sheet is not easy to decipher due to the complex model. But at first glance, it has $917 million in cash, no short-term debt and $3.1 billion in long-term debt. This is manageable given the lack of short-term debt and strong growth.
In terms of valuation, the GF Value Line indicates the stock is modestly undervalued relative to historic ratios, past financial performance and future earnings projections.
Final thoughts
Apollo is a great company that has delivered outstanding growth for investors in its funds. It is poised to benefit from tailwinds in the private equity industry, while the stock is undervalued as of the time of writing.
This company could be a great way to play the alternative investment market.
