Ares Management stock was soaring ahead of the open on Tuesday, rising about 8% after the investment firm secured long-awaited entry into the S&P 500 index.
The company will replace Kellanova, the snacking giant whose brands include Pringles, Cheez-It, and Pop-Tarts.
Kellanova is set to be acquired by privately held Mars Inc., with the deal expected to close shortly.
With a market capitalisation of about $54 billion, Ares has been one of the largest US companies by value not included in the blue-chip benchmark.
The stock had been widely seen as a top contender during the index’s quarterly rebalancing last week, when Carvana, CRH, and Comfort Systems USA were chosen instead.
The snub weighed on investor sentiment, but Monday’s announcement has revived the shares after a difficult year.
A long-awaited boost after a weak year
Heading into Tuesday’s session, Ares shares were down 8% for the year, underperforming the broader market and key rivals.
The company has been weighed down by concerns surrounding the private-credit sector, which has experienced rapid growth but is now facing heightened scrutiny.
Larger competitors such as Blackstone and KKR have also suffered, with both stocks down about 12% in 2025.
The firm’s inclusion in the S&P 500 is expected to provide a lift, as index-tracking funds and institutional investors adjust their holdings.
Ares is set to join the index ahead of the market open on December 11.
Its addition also signals a competitive victory over Marvell Technology, the semiconductor company whose $78 billion market value made it the largest candidate not currently included.
Vertiv Holdings and cryptocurrency-focused Strategy also missed out, though analysts have debated whether Strategy qualifies for inclusion given its limited operating activities.
Signs of stress in financial performance
Despite Tuesday’s share surge, Ares’ financial profile presents a mixed picture.
Revenue growth has been negative over the past three years, slipping 5.7%, while its gross margin of 54.74% has been on a steady long-term decline.
Profitability remains reasonable, with a 17.08% operating margin and a net margin of 12.15%, while the firm’s 43.1% EBITDA margin underscores strong operational efficiency.
Yet earnings growth has fallen by nearly 30% over the same period.
The balance sheet also shows pressure points.
Ares’ debt-to-equity ratio is elevated at 2.84, reflecting heavy reliance on leverage.
Liquidity appears adequate through its 1.54 current and quick ratios, but an interest coverage ratio of just 1.1 suggests potential difficulty meeting financing costs.
Analysts have flagged several warning indicators.
The firm’s Altman Z-Score of 1.74 places it in the distress zone, while a Beneish M-Score of 0.59 hints at possible earnings manipulation risk.
Insider selling has been notable too, with six sales recorded in the past three months.
Valuation remains steep. Ares trades at a price-to-earnings ratio above 70, far above historical averages for the sector.
Its price-to-sales and price-to-book ratios, at 6.54 and 12.01, respectively, also sit at elevated levels.
Private-credit exposure remains a key risk
Ares’ fortunes are closely tied to private credit, which accounts for roughly two-thirds of its $390 billion in assets under management.
At Blackstone, the proportion is closer to one-third, while KKR’s stands below half.
The sector has grown rapidly in recent years, drawing interest from wealthy investors and benefiting from low yields in traditional bond markets.
Policy moves have also opened new avenues. Earlier this year, the Trump administration advanced efforts to allow private assets in 401(k) retirement accounts, potentially unlocking a vast pool of fresh capital.
But signs of strain have emerged.
Bankruptcies at First Brands and Tricolor Holdings triggered concerns about rising defaults, even though the troubled companies had used traditional bank debt.
Blue Owl, another major private-credit player, was recently forced to abandon the merger of two of its business development companies following investor pushback.
Investors must be mindful of financial challenges before considering the stock
Ares chief executive Michael Arougheti has sought to reassure investors, arguing that the firm is positioned to benefit from a credit downturn.
Speaking on the company’s November earnings call, he said Ares had historically emerged stronger from periods of market stress, including the 2008 financial crisis and the Covid-era disruptions.
Analysts remain broadly constructive.
Roughly 65% of those covering the stock rate it a Buy, with an average target near $185.
GuruFocus analysts cautioned that the firm’s financial challenges still warrant careful monitoring, even as S&P 500 inclusion marks a significant milestone.
Tuesday’s surge puts Ares on track to erase its losses for the year, but investors appear mindful that the company’s new market status comes at a moment of rising uncertainty for the sector that underpins its growth.
The post Ares shares surge as firm wins S&P 500 spot: all you need to know about the stock appeared first on Invezz
