Stock Analysis

Here's Why We Think Ares Management (NYSE:ARES) Is Well Worth Watching

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NYSE:ARES
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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Ares Management (NYSE:ARES). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Ares Management

How Quickly Is Ares Management Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Ares Management has managed to grow EPS by 22% per year over three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Not all of Ares Management's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. The good news is that Ares Management is growing revenues, and EBIT margins improved by 6.0 percentage points to 21%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NYSE:ARES Earnings and Revenue History November 15th 2021

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Ares Management?

Are Ares Management Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$25b company like Ares Management. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth US$137m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations over US$8.0b, like Ares Management, the median CEO pay is around US$11m.

The Ares Management CEO received US$7.3m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Is Ares Management Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Ares Management's strong EPS growth. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the takeaway for me is that Ares Management is worth keeping an eye on. Still, you should learn about the 4 warning signs we've spotted with Ares Management (including 2 which can't be ignored) .

Although Ares Management certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

What are the risks and opportunities for Ares Management?

Ares Management Corporation operates as an alternative asset manager in the United States, Europe, and Asia.

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Rewards

  • Earnings are forecast to grow 38.19% per year

Risks

  • Debt is not well covered by operating cash flow

  • Significant insider selling over the past 3 months

  • Profit margins (4.6%) are lower than last year (9.1%)

  • Large one-off items impacting financial results

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