In a year when most financial sector stocks finished in negative territory, Artisan Partners Asset Management (APAM +0.69%) saw its stock rise 71% in 2020. Over the past one-year period through March 25, it has returned 167% and is currently up about 3% year to date in 2021.
Such performance would surely gain it more notoriety, but it has flown under the radar compared to other financial stocks, like fellow asset manager BlackRock, despite outperforming them throughout the pandemic. The good news is, it has more room to run.
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Flight to quality
Artisan is a boutique asset management firm with about $161 billion in assets under management. Its 19 funds are all actively managed, across the spectrum of asset classes and styles including growth, value, international, global, emerging and developing markets, small-cap, mid-cap, and credit funds.
The firm had a great year in 2020 as assets rose 30% to $158 billion. The company had $7.1 billion in net inflows into its funds, with inflows in 16 of its 19 investment strategies. The firm generated $900 million in revenue for 2020, up 13% from the previous year due to higher assets from inflows into its funds and a $10.1 million increase in performance fee revenue. Net income for the year was $213 million, or $3.40 earnings per share, up 36% from 2019.
The firm experienced a flight to quality in a volatile year on the markets. Artisan has a history of outperforming its benchmarks, as 16 of its 17 strategies -- launched prior to 2020 -- have beaten their benchmarks after fees, with 12 beating them by 300 basis points (that is, 3 percentage points) or more since inception.
As it's one of the premier active managers, more investors invested with Artisan because of its stock-picking prowess against the benchmarks. Artisan is different than most firms in that it has nine autonomous investment teams -- growth, global equity, international value, U.S. value, global value, sustainable emerging markets, thematic, developing world, and credit.
Each team develops its own strategies and has its own investment cultures with the idea of establishing long-term franchises that can grow with new products that are distinct to the particular team's investment beliefs.
CEO Eric Colson said on the fourth-quarter earnings call:
Our performance, relationships, and brand positioned us well coming into 2020, a year of historic uncertainty, turmoil, and volatility. During the year, we generated over $30 billion of investment returns for our clients. Approximately $11.3 billion of the $30 billion were returns in excess of benchmarks. We once again demonstrated the value of active management at Artisan Partners.
Consistent earnings growth
Artisan Partners increased its operating margin to 39.8% in 2020, up from 35.5% at the end of 2019. It has an impressive 21.5% return on assets (ROA), a metric that measures how much profit the company is able to generate on its assets. An ROA over 20% is considered excellent and means the company is very efficient.
Artisan has averaged about 16% annual growth in earnings per share (EPS) since the company went public in 2013. Analysts are bullish on its growth prospects for 2021, with a consensus target EPS of $4.70 at the end of 2021, which would represent 38% growth over 2020.
The stock still has a relatively low valuation, trading at about 14 times earnings with a forward price-to-earnings ratio of about 11. Coming out of the recession with continued market volatility expected, a quality active manager like Artisan, with strong financials, should be able to continue to soar. Keep it on your radar.
