Has the Rally in Moelis Shares Already Gone Too Far?

• Wondering if Moelis is still a smart buy at current levels, or if most of the upside is already priced in? Let’s walk through what the recent moves and fundamentals are really telling us about its value.
• The stock has been choppy in the short term, down 1.7% over the last week, but it is still up 14.5% over the past month and almost doubled over 3 and 5 years, with gains of 95.5% and 97.5% respectively.
• Those gains have been driven by Moelis positioning itself as a go to advisor on big ticket M&A and restructuring deals, which investors see as attractive when deal cycles pick up. At the same time, the stock has reacted to headlines about shifting interest rate expectations and capital markets activity, which affect how quickly advisory pipelines convert into fees.
• Despite that track record, Moelis only scores 1 out of 6 on our valuation checks. On the surface it does not scream deep value, but headline multiples do not tell the whole story. Next we will unpack different valuation approaches for Moelis, and later we will look at an even better way to think about what the market is really pricing in.

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

Approach 1: Moelis Excess Returns Analysis

The Excess Returns model looks at how much profit a company can generate above the minimum return investors demand on its equity, and then capitalizes those surplus returns into a per share value.

For Moelis, the model starts from a Book Value of $7.23 per share and a Stable EPS of $3.94 per share, based on weighted future Return on Equity estimates from four analysts. With an Average Return on Equity of 51.88% and a Cost of Equity of $0.74 per share, the Excess Return comes out at $3.20 per share, which implies that Moelis is expected to keep earning well above its capital charge. The Stable Book Value is estimated at $7.60 per share, again sourced from analyst forecasts.

Translating these excess returns into an intrinsic value gives a fair value estimate of about $56.90 per share. With the Excess Returns valuation implying the stock is roughly 21.9% overvalued at today’s price, the market appears to be paying a premium for Moelis earnings power already.

Result: OVERVALUED

Our Excess Returns analysis suggests Moelis may be overvalued by 21.9%. Discover 914 undervalued stocks or create your own screener to find better value opportunities.

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

Approach 2: Moelis Price vs Earnings

For a consistently profitable advisory firm like Moelis, the price to earnings ratio is a useful way to judge value, because it directly links what investors pay today to the company current earnings power. In general, faster expected growth and lower perceived risk justify a higher normal PE, while slower, more volatile earnings should trade on a lower multiple.

Moelis currently trades on a PE of about 21.9x, which is below the broader Capital Markets industry average of roughly 25.5x, but well above the peer group average of around 8.6x. To move beyond these blunt comparisons, Simply Wall St uses a Fair Ratio, which estimates what Moelis PE should be once its earnings growth outlook, margins, risk profile, size and industry are all factored in. For Moelis, that Fair Ratio is 18.2x, which indicates that, given its fundamentals, the stock trades at a solid premium rather than a modest discount.

The gap between the current 21.9x PE and the 18.2x Fair Ratio points to a market premium that looks a bit stretched, which indicates that Moelis is trading above its fundamentally justified multiple.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Moelis Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. This is a simple way to connect your view of a company story with concrete forecasts for its revenue, earnings and margins, and then translate that into a fair value you can compare to today price.

A Narrative on Simply Wall St is your story behind the numbers. It is where you outline what you think will drive Moelis business, plug that view into an easy forecasting framework on the Community page, and instantly see the fair value that falls out of those assumptions.

Because each Narrative links the company story to a full financial forecast, it gives you a live Fair Value that you can weigh against the current Price to help you decide how Moelis aligns with your specific expectations.

Narratives are updated automatically as new earnings, news and valuation assumptions arrive on the platform, so the fair value you see reflects the latest information and evolving market conditions.

For example, one Moelis Narrative might target a fair value of around $90 based on a particular view of private capital advisory, while another might indicate a fair value closer to $65 if it assumes different levels of deal activity and margin outcomes.

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