T. Rowe Price
First-quarter results released this morning showed net income surging 99% to $77.3 million, or $0.58 per share, beating estimates by two pennies. Revenues rose 40% to $305.7 million. More importantly, assets under management increased to a record high of $201 billion, driven by a wave of rising equity markets as well as healthy inflows of $6.4 billion. The company has also taken advantage of a favorable market and rising operating margins to clear all debt off the balance sheet.
The low expense ratios at T. Rowe Price can be a double-edged sword. What is good for the fund owners may not necessarily be good for stockholders. After all, a dollar saved by a fund holder is a dollar lost to the bottom line. However, while reduced expenses may cut into profitability, there is also a distinct advantage in gathering and retaining assets, the bread and butter of an investment advisory firm.
It should be noted that there are plenty of unsophisticated investors who want, and need, the expertise of a professional financial advisor. Because advisors seldom market no-load funds, T. Rowe Price has historically been shut out of this lucrative distribution channel. Fortunately, it has addressed this problem directly by creating new share classes designed to be sold through advisors. Given the firm's impressive performance during the last bear market, it shouldn't take long for brokers to begin recommending T. Rowe Price funds to their clients.
Granted, success at T. Rowe Price depends largely on the health of an unpredictable stock market. However, the company's good name and reliable investment performance are pulling in strong inflows. Throw in rising margins, a new advisor-sold distribution channel, consistent free cash flow, and a dividend yield approaching the S&P average, and this company deserves a closer look.
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Fool contributor Nathan Slaughter routinely extols the virtues of mutual funds, but owns none of the companies mentioned.