Since August 2020, the S&P 500 has delivered a total return of 85.3%. But one standout stock has more than doubled the market - over the past five years, Affiliated Managers Group has surged 208% to $218.35 per share. Its momentum hasn’t stopped as it’s also gained 31.6% in the last six months, beating the S&P by 25.2%.
Is there a buying opportunity in Affiliated Managers Group, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Affiliated Managers Group Not Exciting?
We’re happy investors have made money, but we're swiping left on Affiliated Managers Group for now. Here are two reasons why we avoid AMG and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees.
Unfortunately, Affiliated Managers Group struggled to consistently increase demand as its $2.03 billion of revenue for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and signals it’s a lower quality business.
2. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Affiliated Managers Group’s EPS grew at a weak 4.4% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 2.8% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.
Final Judgment
Affiliated Managers Group isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 8.7× forward P/E (or $218.35 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at one of our all-time favorite software stocks.
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