How StepStone’s Big Bet On Karman’s Defense Backlog At StepStone Group (STEP) Has Changed Its Investment Story

• Earlier this year, California-based StepStone Group disclosed a new position in Karman Holdings, purchasing 292,428 shares valued at about US$21.11 million in the third quarter, making Karman its second-largest 13F-reportable holding.
• The move links StepStone’s portfolio more closely to Karman’s record revenue growth and sizable US$758.2 million funded backlog in missile defense, hypersonics, and space launch programs.
• Next, we’ll examine how this sizable Karman stake, underpinned by its multi-year funded backlog, shapes StepStone Group’s investment narrative.

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What Is StepStone Group's Investment Narrative?

To own StepStone Group, you have to believe in its ability to convert a large, growing private-markets platform and new products like the STPEX fund into sustainable, profitable fee income, despite recent sizeable losses and a thin dividend cover. The new Karman Holdings position ties StepStone more tightly to defense and space demand, but at roughly US$21.11 million it is small against US$389 billion of private equity capital managed, so it is unlikely to move near term earnings on its own. Instead, the bigger short term catalysts still look like fund-raising traction, performance fees, and how quickly management can turn revenue growth into profit. The Karman stake mainly adds color to the narrative, while execution, governance gaps, and ongoing losses remain the core risks.

However, one risk around losses and dividend sustainability is easy to overlook and worth understanding.
Our expertly prepared valuation report on StepStone Group implies its share price may be lower than expected.

Exploring Other Perspectives

Community members on Simply Wall St currently contribute 1 fair value estimate around US$9.10 per share, a sharp contrast to consensus analyst targets. That gap, combined with StepStone’s recent losses and slower expected revenue growth, shows how differently people can view the same stock and why it can pay to weigh several perspectives before forming a view.

Explore another fair value estimate on StepStone Group - why the stock might be worth less than half the current price!

Build Your Own StepStone Group Narrative

Disagree with this assessment? Create your own narrative in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your StepStone Group research is our analysis highlighting 1 key reward and 3 important warning signs that could impact your investment decision.
• Our free StepStone Group research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate StepStone Group's overall financial health at a glance.

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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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