Growth is good because it increases earnings meaningfully and lets the current P/E ratio go down. This is the reason investors pay 20, 50 or even 100 times of earnings for an investment. But you really make money if you buy a stock that beats analyst expectations and generates additional growth fantasies. Let’s take a look into the asset management industry. The industry offers a current dividend yield of 2.6%. The average price to earnings ratio amounts to 17.5.
I analyzed the asset management industry by growth stocks. My first condition is that the 5-year sales and earnings per share growth should be above 10%. Further, the company should have additional growth potential, measured by a positive expected 5-year EPS growth. Finally, the growth should create value. This fact is covered by the ratio return on investment (ROI). The ratio shows how efficiently a company converts its debt and equity into profits. I decided to screen only stocks with a positive ROI. Here are the results:
1. BlackRock (BLK) has a market capitalization of $27.9 billion, generates revenues in an amount of $9.2 billion and a net income of $2.4 billion. Its following P/E ratio is 12.7 and forward price to earnings 11.4, Price/Sales 3.0 and Price/Book ratio 1.1. Dividend Yield: 3.5%. The company grew 48.5% in sales and 24.7% in EPS over the past five years. For the upcoming five years, the EPS growth is expected to grow 19.6%. The ROI is 1.4%.
2. Triangle Capital (TCAP) has a market capitalization of $301.3 million, generates revenues in an amount of $49.1 million and a net income of $41.3 million. Its following P/E ratio is 6.3 and forward price to earnings 8.1, Price/Sales 6.1 and Price/Book ratio 1.2. Dividend Yield: 10.9%. The company grew 43.3% in sales and 33.7% in EPS over the past five years. For the upcoming five years, the EPS growth is expected to grow 10.0%. The ROI is 10.7%.
3. The Blackstone Group (BX) has a market capitalization of $15.3 billion, generates revenues in an amount of $4.3 billion and a net income of $73.6 million. Its following P/E ratio is 113.8 and forward price to earnings 7.0, Price/Sales 3.5 and Price/Book ratio 3.3. Dividend Yield: 2.9%. The company grew 14.7% in sales and 26.6% in EPS over the past five years. For the upcoming five years, the EPS growth is expected to grow 14.7%. The ROI is 4.6%.
4. Waddell & Reed Financial (WDR) has a market capitalization of $2.2 billion, generates revenues in an amount of $1.1 billion and a net income of $182.5 million. Its following P/E ratio is 12.0 and forward price to earnings 10.7, Price/Sales 1.9 and Price/Book ratio 4.3. Dividend Yield: 3.1%. The company grew 10.9% in sales and 20.1% in EPS over the past five years. For the upcoming five years, the EPS growth is expected to grow 14.4%. The ROI is 31.2%.
5. Artio Global Investors (ART) has a market capitalization of $454.8 million, generates revenues in an amount of $326.5 million and a net income of $88.9 million. Its following P/E ratio is 5.1 and forward price to earnings 7.5, Price/Sales 1.4 and Price/Book ratio 3.1. Dividend Yield: 3.2%. The company grew 10.7% in sales and 18.2% in EPS over the past five years. For the upcoming five years, the EPS growth is expected to grow 11.5%. The ROI is 27.2%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
