Brookfield Asset Management Inc (TSE:BAM.A): Should The Recent Earnings Drop Worry You?

After reading Brookfield Asset Management Inc’s (TSX:BAM.A) most recent earnings announcement (30 September 2017), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. See our latest analysis for Brookfield Asset Management

Was BAM.A weak performance lately part of a long-term decline?

I use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This enables me to analyze different stocks on a more comparable basis, using the most relevant data points. For Brookfield Asset Management, its most recent earnings (trailing twelve month) is US$450.00M, which compared to last year’s level, has plunged by a substantial -77.75%. Since these values are somewhat myopic, I’ve determined an annualized five-year figure for Brookfield Asset Management’s earnings, which stands at US$1.88B This doesn’t look much better, as earnings seem to have gradually been deteriorating over the longer term.

TSX:BAM.A Income Statement Feb 15th 18
TSX:BAM.A Income Statement Feb 15th 18
What could be happening here? Well, let’s take a look at what’s transpiring with margins and if the entire industry is feeling the heat. Revenue growth in the last couple of years, has been positive, however earnings growth has been deteriorating. This means Brookfield Asset Management has been increasing expenses, which is hurting margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the Canadian capital markets industry has been enduring some headwinds in the previous twelve months, leading to an average earnings drop of -7.56%. This is a momentous change, given that the industry has constantly been delivering a a robust growth of 15.24% in the past half a decade. This suggests that whatever near-term headwind the industry is experiencing, it’s hitting Brookfield Asset Management harder than its peers.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Usually companies that endure a drawn out period of reduction in earnings are going through some sort of reinvestment phase . However, if the entire industry is struggling to grow over time, it may be a signal of a structural shift, which makes Brookfield Asset Management and its peers a riskier investment. You should continue to research Brookfield Asset Management to get a better picture of the stock by looking at:

  • 1. Financial Health: Is BAM.A’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  • 2. Valuation: What is BAM.A worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BAM.A is currently mispriced by the market.
  • 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2017. This may not be consistent with full year annual report figures.