Is Apollo Global Management Attractively Priced After Expanding Its Alternative Credit Footprint?

• If you have been wondering whether Apollo Global Management is a bargain or a value trap at around $138 a share, this breakdown will walk you through what the market might be missing.
• The stock has climbed 4.8% over the last week and 3.3% over the past month, but those short term gains sit against a sharper pullback of 16.7% year to date and 21.2% over the last year, even after a big 131.3% three year and 223.0% five year run.
• Recent headlines have focused on Apollo expanding its footprint in alternative credit and private markets, as well as deepening partnerships with institutional investors, reinforcing the story that it is positioning for long term fee based growth. At the same time, shifts in interest rate expectations and sentiment toward alternative asset managers have added volatility, helping explain the disconnect between long term growth and the more recent share price weakness.
• On our checklist of six valuation tests, Apollo Global Management scores a 3 out of 6, suggesting the shares look undervalued on some measures but not all. Next, we will compare multiple valuation approaches and, by the end, introduce a more holistic way to decide what the stock is really worth.

Find out why Apollo Global Management's -21.2% return over the last year is lagging behind its peers.

Approach 1: Apollo Global Management Excess Returns Analysis

The Excess Returns model looks at how much value Apollo can create above the required return for shareholders, based on its profitability on equity and how that equity base is expected to grow over time.

For Apollo, the starting point is a Book Value of $37.46 per share and a Stable EPS of $10.62 per share, drawn from weighted future Return on Equity estimates from 4 analysts. With an Average Return on Equity of 17.79%, the company is projected to earn well above its Cost of Equity of $4.49 per share, generating an Excess Return of $6.13 per share.

The model also assumes a Stable Book Value rising to $59.67 per share, based on estimates from 2 analysts. This allows those excess returns to compound over time. When these future excess profits are capitalized, the Excess Returns approach arrives at an intrinsic value of about $203.28 per share. Compared with the current price around $138, this implies the shares are roughly 32.0% undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests Apollo Global Management is undervalued by 32.0%. Track this in your watchlist or portfolio, or discover 906 more undervalued stocks based on cash flows.

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

Approach 2: Apollo Global Management Price vs Earnings

For a profitable asset manager like Apollo, the price to earnings ratio is a useful way to gauge how much investors are willing to pay for each dollar of current earnings. In simple terms, higher growth and lower perceived risk can justify a higher PE ratio, while slower growth or higher risk generally demand a discount.

Apollo currently trades on a PE of about 19.73x. That is noticeably above both the Diversified Financial industry average of around 13.81x and the peer average of roughly 13.05x, suggesting the market is already assigning Apollo a quality and growth premium relative to its sector.

Simply Wall St’s Fair Ratio framework estimates what a more tailored PE should be, given Apollo’s earnings growth profile, profit margins, industry, market cap and risk factors. For Apollo, this Fair Ratio comes out at 23.25x, which is higher than the current 19.73x. On this basis, the stock screens as undervalued relative to what investors might reasonably pay once those fundamentals are fully priced in.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Apollo Global Management Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple tool on Simply Wall St’s Community page that lets you attach a clear story to your numbers. It does this by spelling out why you think Apollo’s revenue, earnings and margins will move a certain way, linking that story to a financial forecast and then to a fair value that you can compare against the current share price to decide whether to buy, hold or sell. There is the added benefit that your Narrative updates dynamically as new news or earnings arrive, so your fair value stays aligned with reality. For example, one Apollo investor might build a bullish Narrative around S&P 500 inclusion, industrial and retirement growth and arrive at a fair value near $178, while another more cautious investor might focus on execution, competition and regulation and anchor closer to $118. This gives you a clear, side by side view of how different perspectives translate into different valuations and helps you choose which story, and which price, you believe.

Do you think there's more to the story for Apollo Global Management? Head over to our Community to see what others are saying!

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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