Amidst a daily loss of -5.49% and a 3-month gain of 7.63%, investors are prompted to question the valuation of Ares Management Corp (ARES, Financial), particularly in light of its Earnings Per Share (EPS) (EPS) of 2.17. With the stock currently labeled as Significantly Overvalued by the GF Value, this article aims to dissect the financials and market positioning of Ares Management to determine if this valuation holds true. Read on for an insightful analysis into whether Ares Management's stock is poised for success or if investors should tread cautiously.
Company Introduction
Ares Management Corp (ARES, Financial) is a robust asset management company based in the United States, offering investment advice and strategies for capital growth. Its diverse operating segments include the Credit Group, Private Equity Group, Real Estate Group, Secondaries Group, and Strategic Initiatives, with the Credit Group being the main revenue driver. The company manages a wide range of credit strategies and investment strategies across various sectors. This comprehensive overview sets the stage for a deeper investigation into the company's valuation, juxtaposing Ares Management's stock price of $103.79 with its GF Value of $76.31, an estimation of its fair value.
Summarize GF Value
The GF Value is a proprietary measure of a stock's intrinsic value and is central to our valuation analysis. It is meticulously calculated by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. When a stock price significantly exceeds the GF Value Line, it suggests an overvaluation, hinting at a potentially lower future return. Conversely, a price well below the GF Value Line may indicate a higher future return. Currently, with a market cap of $19.60 billion and a stock price significantly above the GF Value Line, Ares Management (ARES, Financial) is deemed significantly overvalued, which could imply a disappointing long-term return relative to the company's business growth.
Financial Strength
Investors must consider a company's financial strength to mitigate the risk of capital loss. Indicators such as the cash-to-debt ratio and interest coverage provide insights into a company's financial robustness. Ares Management's cash-to-debt ratio of 0.08 ranks lower than 85.03% of its peers in the Asset Management industry, reflecting a potential area of concern. With an overall financial strength rating of 4 out of 10, Ares Management's financial position could be stronger.
Profitability and Growth
Profitability is a key metric when assessing the safety of an investment. Ares Management has demonstrated a decade of profitability, with a noteworthy operating margin of 42.11%, ranking higher than 72.85% of competitors in the Asset Management industry. This strong profitability, with an 8 out of 10 ranking, indicates a solid financial foundation. However, growth is equally crucial for long-term value creation. Ares Management's average annual revenue growth stands at 5.1%, which is mediocre compared to industry standards. Moreover, its 3-year average EBITDA growth rate of 6.2% also positions it in the lower half of the industry.
ROIC vs. WACC
A critical analysis of a company's value creation involves comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Ares Management's ROIC of 8.36 is currently lower than its WACC of 10.43, suggesting that the company may not be generating sufficient returns on its investments to cover its cost of capital, a situation that could hinder the creation of shareholder value.
Conclusion
In conclusion, the stock of Ares Management appears to be significantly overvalued. While the company exhibits strong profitability, its financial condition raises concerns, and its growth and value creation metrics do not support its current market valuation. Investors seeking a deeper understanding of Ares Management's financials can refer to its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
