Brookfield Asset Management (BAM 0.02%) has risen along with the market over the past year, with its stock and the S&P 500 index (^GSPC 0.53%) both up roughly 15%. Over the past three months, however, investor enthusiasm around the Canadian asset manager has cooled, with the stock down a touch while the market has gained nearly 7%. What should investors make of the stock now?
What does Brookfield Asset Management do?
As Brookfield Asset Management's name makes clear, it is an asset manager. That means it gets paid to invest on behalf of its customers. Essentially, it collects a fee based on the assets in its care. The normal figure to watch for an asset manager is assets under management, but Brookfield's business is a bit more complex.
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The company manages its own money and oversees a collection of publicly traded businesses. So the key number for Brookfield Asset Management is fee-bearing capital. Right now assets under management stand at roughly $1.1 trillion while fee-bearing capital is around $560 billion.
The company's focus has long been in infrastructure, where it has invested globally for around 100 years. However, it has been broadening its reach in recent years, and now has operations in other areas as well. At this point, Brookfield Asset Management breaks down its key investment themes across renewable power, infrastructure, real estate, private equity, and credit. It is a big player in each.
What does the future look like for Brookfield Asset Management?
While nobody can predict the future, Brookfield Asset Management has plans to materially grow its fee-bearing capital. The goal is to hit roughly $1.2 trillion by 2030. That, in turn, is expected to allow the company to grow its free-related earnings by 17% a year, on average, over that span. And that will lead to distributable earnings growing at a compound annual rate of 18% a year.
That's very impressive growth. Brookfield Asset Management believes that its focus on so-called alternative assets will be the driving force. This is a segment of the asset management business that is seeing strong demand from institutional investors, corporate partnerships, and governments. Individual investors are also in the mix, but the company thinks there is still materially more opportunity to grow with individuals.
From a growth investing perspective, Brookfield Asset Management, if it can live up to its goals like it has in the past, looks like an attractive choice. In fact, it exceeded its 2020 to 2025 growth plans, so just meeting the current plans seems like a relatively easy hurdle. But what about the stock's valuation? Simply put, it isn't cheap.
The price-to-earnings ratio is roughly 39 right now. That's high on an absolute level. But Brookfield Asset Management's P/E ratio compares to 44 for Blackstone (BX -1.01%) and roughly 39 for BlackRock (BLK -0.83%), two large U.S. asset managers. So valuation wise, Brookfield Asset Management isn't out of line with similar asset management businesses. In other words, it could be argued that Brookfield Asset Management would be attractive to growth at a reasonable price (GARP) investors.
Brookfield Asset Management isn't for everyone, but a lot will like it
The last piece of the puzzle here is the dividend yield, which sits at 3.1%. That's well above the 1.2% on offer from the S&P 500 index. And the growth expected in distributable earnings suggests that dividend increases, perhaps large ones, could be in the cards for years to come. As such, income-focused investors, particularly dividend growth investors, will probably find the stock interesting as well. The only group that probably shouldn't bother with Brookfield Asset Management is value investors.
