Brookfield Asset Management (TSX:BAM): Assessing Valuation After Recent Share Price Underperformance

Brookfield Asset Management (TSX:BAM) has quietly underperformed this year, with the stock down about 8% year to date even as its underlying business continues to post double digit revenue and net income growth.

See our latest analysis for Brookfield Asset Management.

That disconnect shows up in the tape too, with the shares sitting at $72.11 after a roughly 8% year to date share price decline. Even so, the three year total shareholder return of about 110% still signals strong long term momentum rather than a broken story.

If you like the long term compounding angle behind Brookfield’s growth platform, it is also worth scanning for other managers and operators with aligned incentives via fast growing stocks with high insider ownership.

With double digit earnings growth, a modest discount to analyst targets and a stellar three year track record, investors now face the key question: is Brookfield Asset Management undervalued, or is the market already pricing in its future growth?

Price-to-Earnings of 32.3x: Is it justified?

On a price-to-earnings basis, Brookfield Asset Management looks richly priced at 32.3 times earnings compared to its CA$72.11 last close.

The price-to-earnings ratio compares the current share price to per share earnings and is a quick snapshot of how much investors are willing to pay for each dollar of profit. For a capital markets and asset management business, this multiple often reflects expectations for durable fee income, scalable growth and the quality of earnings.

In Brookfield Asset Management’s case, the 32.3 times earnings tag stands well above the Canadian Capital Markets industry average of 8.9 times. This suggests the market is assigning a premium to its profit growth, high margins and return profile. However, it also trades above the estimated fair price-to-earnings ratio of 23.9 times. This is a level the market could gravitate toward if growth expectations or sentiment cool from current levels.

Explore the SWS fair ratio for Brookfield Asset Management

Result: Price-to-Earnings of 32.3x (OVERVALUED)

However, investors should watch for slower fund inflows or weaker capital markets, which could compress fees, challenge growth assumptions, and pressure that premium valuation.

Find out about the key risks to this Brookfield Asset Management narrative.

Another Angle on Valuation

Our DCF model points in a different direction, suggesting Brookfield Asset Management is overvalued, with the current CA$72.11 price sitting above an estimated fair value of CA$58.27. If cash flows matter more than today’s earnings momentum, the downside risk could be larger than it appears.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Brookfield Asset Management for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 917 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Brookfield Asset Management Narrative

If you see the numbers differently or want to dig into the data yourself, you can build a custom narrative in just a few minutes using Do it your way.

A great starting point for your Brookfield Asset Management research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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