Time is a beautiful thing when it comes to investing. Thanks to the power of compounding returns, a small investment in a high-quality company can grow into heaps of cash over time. Take alternative asset-management company Blackstone (BX 1.77%). The stock has provided a total annualized return double that of the S&P 500 over the past 10 years.
That means a $5,000 investment in Blackstone in 2012 would have grown into roughly $43,500 without reinvesting dividends. That's around $27,000 more than a $5,000 investment in the S&P 500 would have provided during that same period. Not to mention the stock has paid an average dividend yield of 5.7% during that time, nearly four times higher than the S&P 500.
NYSE: BX
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Blackstone is having a tough year, though. The stock is trading near its 52-week low. That's leaving many opportunistic investors wondering whether the company will have the same massive money-making potential during the next 10 years. Let's take a look closer.
Where Blackstone stands today
Blackstone is the world's largest alternative asset-management company, overseeing roughly $951 billion for wealthy individuals and institutional investors. Unlike other asset-management companies that invest in more traditional asset classes -- like stocks, bonds, and exchange-traded funds (ETFs) -- Blackstone invests in debt securities, venture capital, real estate, life sciences, and infrastructure, along with many other investment alternatives.
The company has achieved tremendous growth this year thanks to a steady influx of investor capital amid declines in public markets. Interest in alternative assets has risen rapidly during the past decade, helping Blackstone achieve its impressive share price growth.
As of the third quarter of 2022, Blackstone's assets under management grew by 51% year over year. Since its main source of income is from fees based on the money it manages, the rapid increase in investor capital has boosted its fee-related earnings (FRE) by 34%. It's also achieved healthy performance in its private funds and real estate investment trust (BREIT), which increased its performance fees by more than 400% year over year.
The general bear market, rising interest rates, and concern over the slowing real estate market have pushed Blackstone's shares down 42% this year. Much of this concern is overdone, considering the company is flush with capital and still seeing extremely positive results within its investments.
However, investors are growing concerned about its performance in the coming years. There was a sell-off earlier this month after a growing number of investors in BREIT made redemption requests, forcing the company to close the gate on redemptions. It also announced a plan to delay a new private equity fund, waiting for better timing to allocate its funds.
Where Blackstone could be in the next 10 years
The company is facing headwinds as inflation continues to weigh on the economy. Real estate markets are slowing rapidly, potentially leading to lower asset values, higher vacancies, and lower asking rents within its real estate portfolio. The company also faces higher interest rates, which increases its short-term borrowing costs.
However, the company is still well positioned for long-term growth. Blackstone exposes investors to industries otherwise out of reach for many due to the capital or knowledge required to invest successfully -- and the appetite for alternative assets remains strong. Private equity fund CAIS projects the alternative asset-management sector could grow by as much as $10 trillion by 2030.
Blackstone went public in 2007, just before the start of the Great Recession. During the five years that followed, the stock lost 58% of its value. At one point, it had fallen as much as 85%. Even if a recession were to happen in 2023 or beyond, Blackstone has what it takes to rebound and soar in the next bull run.
The company has deep experience with opportunistic distressed investments. From 2010 to 2012, it spent millions of dollars on real estate at the bottom of the market and turned the properties into turn-key rentals, which was enormously profitable for the company. It also has $182 billion of dry powder, which could be put to work quickly in the event of a recession and more troubled assets become available.
Considering the growing demand for alternative assets -- as well as its healthy financial position, experience, and reach -- Blackstone is a strong contender for another 10 years of exceptional growth. It may take a few years before the stock recovers, particularly if recessionary concerns continue. However, its compounding abilities seem far from over, which makes a $5,000 investment today a smart decision for patient investors.
