Ares Management (ARES) stock has had a remarkable performance in the last decade, making it one of the best-performing companies in Wall Street. After launching an IPO at $10 in 2014, it has risen to a record high of $160.
$10,000 invested in Ares in 2014 would now be worth $160,000. A similar amount invested in the S&P 500 index would be worth about $30,000 today. Ares has also done better than other companies like Carlyle Group and Brookfield Asset Management. It has underperformed, by far, the likes of Apollo Global and Blackstone.
Ares Management is growing
Ares Capital is not as popular as other companies in the private equity industry like Apollo, Blackstone, Carlyle, and TPG. Yet it is one of the biggest players in the industry, with over $447 billion in assets. It is also a fast-growing company whose assets have grown from $74 billion in 2013 to $420 billion.
While Ares is classified as a private equity company, it is actually a large player in the private credit industry. Data shows that its credit business has been the biggest contributor to its business for a long time. It has over $323 billion in assets, followed by real assets, which has $67.7 billion.
Ares’ private equity, secondaries, and other businesses have over $24.6 billion, $26.3 billion, and $5.5 billion, respectively.
Ares Management made headlines this week when it announced a large acquisition of GCP International, a company that focuses on the real estate sector. It bought it for $3.7 billion.
The acquisition will bring in about $44 billion in asset under management, transforming Ares into a giant player in the industry with $96 billion in assets.
Ares Management’s financial statements show that the company’s business has been doing well. Its annual revenue rose to over $1.765 billion in 2019 to $3.6 billion in 2023.
This revenue growth happened because its business makes most its money through management fees, which are then determined by the amount of assets under management.
Ares business is doing well
Demand for alternative assets has been growing in the past few years as most pension firms and endowments have attracted more capital. In Ares Capital case, the number of direct institutional investors in its business has grown from 182 in 2011 to 2,533 in 2023, a trend that may continue in the near term.
Ares has also benefited from the growing demand in the private credit industry, which has a large addressable market of $40 trillion. Altogether, the company has a small market share of 0.6% in industries with an addressable market of over $90 trillion.
The most recent results showed that Ares net income rose to $94.6 million as its management fees jumped to $721 million. Its AUM rose to $447 billion, while its fee paying AUM was $275 billion while AUM not yet paying fees was $70.8 billion.
Therefore, the company will likely benefit as demand for capital rises in the coming months now that the Federal Reserve has started cutting interest rates.
The next key catalyst for Ares Management stock will be its quarterly results scheduled for November 1.
Analysts expect th result to show that its revenue for the quarter was $807 million, a 20% increase from the $671 million it made in the same period last year. Its fourth quarter revenue is expected to be $1.1 billion while its annual revenue in 2024 and 2025 will be $3.65 billion and $4.7 billion.
Valuation concerns remain
While Ares Management is doing well, and that the GCP buyout will add more fees, the biggest concern is that Ares is highly overvalued.
Ares has a market cap of almost $50 billion, making it bigger than companies like Blue Owl, Carlyle, and Brookfield.
Its valuation metrics are significantly higher than other companies. For example, it has a forward P/E multiple of 38, higher than Blue Owl’s 27, Carlyle’s 16, and Blackstone’s 33.
A good way to look at it is in terms of its revenues and profits. Ares revenue in the trailing twelve months was over $3.2 billion, while its net income was $403 million. Its annual profit has never crossed the $500 mark, meaning that investors are overpaying.
Ares valuation multiples are in par with those of other growing companies like Nvidia and Microsoft.
Ares Management stock analysis
ARES chart by TradingView
The weekly chart shows that the ARES share price has been in a strong bull run for a long time. Most recently, it has formed a rising broadening wedge chart pattern, a popular reversal sign.
The Relative Strength Index (RSI) and the MACD indicators have also formed a falling divergence chart pattern.
Therefore, while the uptrend will continue as other large players in the private equity industry rise, there is a risk that it will underperform in the future.
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