Does Franklin Resources Offer Value After Recent 9% Drop and Ongoing Market Volatility?

If you have ever stared at Franklin Resources stock and wondered whether now is the time to act, you are certainly not alone. This is a name that gets plenty of investor attention, especially after a year of strong gains and a recent streak of volatility. The stock has jumped 15.5% year-to-date and climbed 19.0% over the past twelve months. However, the past month told a different story, with a dip of 9.2%. Weekly performance is also in the red, down 4.7% over the last seven days. A longer lens reveals that Franklin Resources delivered a 42.0% return over five years, so the company has a history of rewarding patient investors.

There is no shortage of headlines around asset managers as markets recalibrate expectations. Shifting sentiment and rotation among investors seem to be driving much of the recent price action. Franklin's recent pullback could offer an opportunity, or it might be a signal to proceed with caution. Deciding which is which is where things get interesting.

Valuation is central to the decision process, and if you are hoping for a sweeping declaration that Franklin Resources is deeply undervalued, it is worth noting the company only scores 1 out of 6 on our standard undervaluation checks. That means only one major measure flags the stock as a bargain right now, suggesting the price might be less attractive than it appears at first glance.

So, how do we reconcile these mixed signals? Let us walk through the main valuation approaches investors use, and along the way, we will touch on a way of thinking about value that often gets overlooked, but could make all the difference.

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

Approach 1: Franklin Resources Excess Returns Analysis

The Excess Returns valuation model focuses on how much value Franklin Resources generates over and above its cost of equity. In simple terms, it examines the company’s ability to earn attractive returns on shareholders’ money, once the baseline cost of equity is accounted for.

Franklin Resources currently has a book value of $23.54 per share, with a stable earnings per share estimated at $2.10, according to forecasts from four analysts. The cost of equity stands at $2.02 per share. This leaves an excess return of just $0.07 per share, indicating that the company is producing only a modest amount above its cost of capital. The average return on equity over the latest period comes in at 9.18%, while the stable book value is projected at $22.83 per share based on the outlook from two analysts.

After running these figures through the Excess Returns model, the resulting intrinsic value suggests that Franklin Resources is approximately 3.3% undervalued compared to its current share price. While this technically signals a slight undervaluation, the margin is very narrow and does not present a compelling discount.

Result: ABOUT RIGHT

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

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Franklin Resources's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Franklin Resources Price vs Earnings

Using the Price-to-Earnings (PE) ratio is a tried-and-true way to value profitable companies like Franklin Resources because it links a company’s share price directly to its bottom-line earnings. The PE ratio gives investors a sense of how much they are paying for each dollar of earnings, which makes it especially useful for established businesses with steady profitability.

What counts as a “normal” or “reasonable” PE ratio can vary a lot depending on how fast a company is expected to grow and how risky the business is. Firms with higher growth prospects or lower risks usually command higher PE ratios, while slower-growing or riskier companies trade at a discount.

Franklin Resources currently trades at a PE ratio of 44.6x, which stands out compared to both its peer group average of 17.0x and the wider Capital Markets industry average of 27.2x. Simply Wall St's “Fair Ratio” for Franklin Resources, a proprietary measure that adjusts for the company's earnings growth, profit margins, market cap, industry, and unique risks, comes in at 19.6x. This approach provides a richer perspective than a straight comparison with peers or sector averages because it reflects what an informed and rational market might pay, given all the relevant context around the business.

Comparing the Fair Ratio with the current PE ratio, Franklin Resources appears to be trading at a significantly higher price than what would be considered fair, even after tailoring for growth and risks unique to the stock.

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 Franklin Resources Narrative

Earlier, we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, a flexible, story-driven approach found on Simply Wall St’s Community page that empowers millions of investors to blend their personal perspective with hard numbers.

At its core, a Narrative lets you describe the unique story you believe best explains the company’s future. You can tie it to your assumptions about revenue, earnings or margins, and see how this shapes fair value, all in one easy-to-use tool.

Narratives turn static forecasts into living, breathing investment theses. They make it simple to compare your calculated fair value to the current price so you can decide if it is time to buy, hold, or sell. As new news or earnings arrive, your fair value estimate updates automatically.

For example, some Franklin Resources investors are bullish, building a narrative around international expansion, new technology, and product innovation to arrive at a fair value of $31.00 per share. The most cautious focus on risks like client outflows or fee pressure and set their fair value as low as $19.00.

Do you think there's more to the story for Franklin Resources? 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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