How Attractive Is Brookfield Asset Management After 31% Annual Gain and Recent Market Dip?

If you are wondering what to do with Brookfield Asset Management stock right now, you are definitely not alone. The company’s shares closed at $80.94 most recently, and while the past month saw a dip of -2.8%, there is still a notable gain of 30.6% over the past year. This mix of short-term volatility and long-term strength has investors asking whether Brookfield’s current price presents an opportunity or if the market is signaling caution.

The past week, with a -2.1% pullback, echoes broader market jitters around global asset managers. Some investors are reading this as a sign of reevaluated risk. If we zoom out, however, Brookfield’s consistent upward momentum year to date, up 3.3%, remains notable. The company appears to be benefiting from positive market sentiment but is also facing headwinds, which brings questions of valuation to the forefront for anyone considering whether to buy, hold, or sell.

When using standard valuation methods, Brookfield Asset Management currently checks the “undervalued” box in just 1 out of 6 key categories, giving it a valuation score of 1. This raises the question of whether this is a signal to steer clear or if the market might be missing something. Here is a breakdown of each valuation approach, followed by a discussion of a more holistic way to evaluate whether Brookfield deserves a place in your portfolio.

Brookfield Asset Management scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Brookfield Asset Management Excess Returns Analysis

The Excess Returns model estimates a stock's intrinsic value by focusing on the returns a company generates above its cost of equity. This method considers how efficiently Brookfield Asset Management puts shareholder capital to work and how much of that return exceeds expectations over time.

For Brookfield Asset Management, analysts project an average future return on equity of 29.67%, a strong performance signal. The company's book value per share stands at CA$5.25, with a stable estimate of CA$7.18 going forward, based on expectations from four analysts. Meanwhile, its stable annual earnings per share (EPS) are estimated at CA$2.13, and the cost of equity is CA$0.54. This leads to an estimated excess return of CA$1.59 per share, reflecting solid value creation beyond the minimum required by investors.

Despite these strong fundamentals, the model calculates an intrinsic value of CA$54.44 per share. At a recent market price of CA$80.94, Brookfield Asset Management trades at a premium. This suggests it is 48.7% overvalued by this measure. Investors should take note that even with robust excess returns, the market appears to have more than priced in the company’s potential.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Brookfield Asset Management.

Our Excess Returns analysis suggests Brookfield Asset Management may be overvalued by 48.7%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Brookfield Asset Management Price vs Earnings

For stable, profitable companies like Brookfield Asset Management, the Price-to-Earnings (PE) ratio remains a cornerstone metric for valuation. The PE ratio is especially insightful because it represents what investors are willing to pay for each dollar of current net earnings, making it a convenient measure to compare across similar firms and industries.

However, it is important to recognize that higher growth expectations and lower risk profiles usually justify a higher PE ratio, while slow growth or elevated risk typically result in a lower one. Brookfield Asset Management currently trades at a PE ratio of 38.5x, which stands in stark contrast to the capital markets industry average of 9.5x and the peer group average of 53.7x. This already signals a premium, but industry and peer averages alone do not tell the full story, especially when company-specific growth, market position, and risks are considered.

This is where Simply Wall St's “Fair Ratio” offers a more nuanced benchmark. Unlike crude comparisons to peers or industry norms, the Fair Ratio of 32.7x for Brookfield is tailored to account for its unique growth projections, margins, risk factors, industry context, and market cap. By weighing these factors, the Fair Ratio aims to estimate the most appropriate multiple the market should pay for the company given its strengths and risks.

When comparing Brookfield's actual PE of 38.5x to its Fair Ratio of 32.7x, the stock appears to be valued above what is justified by its outlook and fundamentals. This suggests the market is assigning a higher premium than warranted given current conditions.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Brookfield Asset Management Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let's introduce you to Narratives. A Narrative is simply your take on a company’s story, connecting your view about its future to forecasted numbers like revenue, earnings, and margins. This leads to a personalized fair value.

Narratives are designed to help you frame your investment decisions in a more dynamic and intuitive way. On Simply Wall St's Community page, used by millions of investors, Narratives are easily accessible and empower you to instantly see how your expectations compare to others and to the market.

Rather than just relying on traditional metrics, Narratives link the story you believe about Brookfield Asset Management to actual financial forecasts. These forecasts update seamlessly when new information, such as news or earnings reports, becomes available.

By comparing your fair value to the current price, Narratives make it straightforward to decide when to buy or sell. For example, some Brookfield Asset Management investors might see much higher growth and set a fair value above $95. Others with a more cautious outlook might put it near $53, reflecting a wide variety of perspectives based on their narratives.

Do you think there's more to the story for Brookfield Asset Management? Create your own Narrative to let the Community know!

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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