Alternative asset management company Blackstone (BX 2.82%) is making quite the rally. Since the start of 2023, the stock has soared 26%, a gain of more than four times the S&P 500 average during that same period. The stock is still down 26% from the last year, but its recent comeback has investors wondering whether now is a good time to buy.
Let's take a closer look at what's going on with the company and whether today's prices make it a deal.
Why Blackstone is soaring
Interest in alternative assets -- like real estate, debt equities, and credit, along with other non-traditional investment avenues -- has grown dramatically over the past decade. From 2010 to 2020, more than $603 billion was poured into the alternative assets industry, giving it a compounded annual growth rate (CAGR) of roughly 13% per year.
Market volatility over the last few years has only exasperated this trend, leading more and more wealthy individuals and large investment firms to find new ways to grow their money and diversify their holdings. Which is great news for Blackstone, one of the world's leading and largest alternative asset management companies.
The company saw its assets under management (AUM) grow by 11% to a record $975 billion at the end of 2022. The year prior (2021), its AUM grew by 42% year over year, indicating demand for its services and alternative assets industry is scorching.
Still, general market volatility and concern over rising interest rates weighed on the company. It didn't help that Blackstone saw an uptick in redemption requests for one of its main products, private real estate investment trust Blackstone Real Estate Income Trust (BREIT), toward the end of 2022. The sudden rise in requests, alongside a slowing real estate market, made investors uneasy and sent the stock down nearly 50%.
The company has since imposed withdrawal caps to limit the amount of money leaving BREIT. Its fourth-quarter and full-year earnings also showed positive gains in its revenues and fee-related earnings (FRE) while maintaining a fortified balance sheet. Following the release, The University of California (UC) invested $4 billion in BREIT, which many considered a vote of confidence in the company. These factors combined put investors' concerns at ease, in turn sending the stock soaring.
The long-term outlook for the alternatives industry remains solid. Some experts predict global AUM will double over the next five years, reaching $18 trillion by 2027. Since Blackstone directly benefits from growing demand in this arena, there's potential for the stock to keep soaring alongside this trend.
Is it a good buy at today's pricing?
I'll be the first to admit Blackstone trades at a premium compared to its other asset management peers. At the time of this writing, its price-to-earnings (P/E) ratio is roughly 31 times, while its peers trade around 20 times or less. But if we consider Blackstone's long-term growth opportunities -- its premium price is more than warranted.
The stock has far outperformed its peers and the S&P 500 over the last five-, 10-, and 15-year periods. Since its initial public offering in 2007, its share price has nearly tripled, and the company has plenty of money to help it continue growing. Blackstone is sitting on $187 billion in dry powder for opportunistic investing this year. It closed a $25 billion private equity fund at the start of 2023 and expanded its management for its private credit business.
Blackstone also pays a healthy dividend of around 4.7% at the time of this writing. Dividend growth isn't something investors should necessarily rely on since the company fluctuates its payments according to earnings. However, it's still an attractive yield that's over 3 times the average of the S&P.
Considering the stock is still down 26% from last year's high, I think today's price makes it a fantastic buy. I am invested in this stock and have been adding to my positions in market dips. I'm very bullish on the future of this company and love that I can collect an attractive dividend while the stock grows.
