When it comes to big, publicly owned investment management companies, there's little doubt which one investors love best: Blackrock (NYSE:BLK) is top of the heap. Rated "four stars" by The Motley Fool's CAPS supercomputer, Blackrock easily eclipses smaller rival State Street (NYSE:STT), rated three stars, and larger rival UBS (NYSE:UBS) -- an anemic two stars. But why?
After all, Blackrock isn't an obvious bargain. It costs nearly 19 times trailing earnings, and carries a forward P/E ratio of nearly 15, more expensive than either of its rivals, who trade in the upper 12s.
So today, let's take a look at why it might be that investors prefer Blackrock, and whether the stock's likely to maintain its outperformance, or fade back into the pack of also-rans. We'll begin with a couple of predictions from Wall Street's best and brightest analysts ... and then I'll give you a prediction of my own.
Prediction No. 1: Superior sales
One reason investors appear to favor Blackrock stock over the alternatives is pretty simple: Of the three, it's the fastest grower.
As you can see in the chart below, last year, Blackrock generated the least revenue of the three firms named. But analysts expect this to change in a jiffy. Crystal balls are notoriously hard to read, but the Street thinks we'll see Blackrock take the No. 2 position away from State Street as early as this year, then keep on outgrowing its rivals through 2016.
Prediction No. 2: Superb earnings
A corollary to this trend -- if this is indeed how things play out for Blackrock stock -- is that analysts see more potential for the company's faster revenue grower to result in fast-growing earnings, as well. Let's take a look at how analysts see this trend working.
Now ... don't get too excited at the height of Blackrock's "bars" up there. The main reason Blackrock stock earns more per share than its rivals do is because it simply has fewer shares outstanding, and fewer shares among which to divide up its profits.
More important than the company's per-share profit is the fact that Blackrock's growing this profit at a faster rate than its rivals -- about 13.4% per annum. (And maybe even faster than that. We don't have a reliable estimate for Blackrock's 2016 earnings, yet). In contrast, estimates call for 12% long-term earnings growth at UBS, and only 11.4% at State Street.
Prediction No. 3: All good things must come to an end
And now it's time for that prediction I promised you up above. Investors clearly love the rapid rate of growth at Blackrock -- both the growth it's produced in the past, and the growth it's expected to produce in the future. They're also probably pleased with the fact that Blackrock stock has gone up 55% over the past year in response to the company's continued success.
But, while the earnings growth may continue, I expect anyone counting on another 55% bull run in the stock will be disappointed.
The reason: At nearly 20 times earnings today, Blackrock stock already prices in its potential for 13.4% future earnings growth, and even its generous 2.4% dividend yield. The stock also looks expensive based on its price-to-book value ratio of 1.8. At a P/B valuation 25% more expensive than State Street, and 38% more than UBS, Blackrock stock is simply overpriced.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends BlackRock. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.