Ares Management: A Correction or a Catalyst for Long-Term Investors?

Ares Management (ARES) has long been a cornerstone of the private credit and alternative asset management space, and its Q2 2025 earnings report—while mixed—presents a compelling case for discerning investors. The company's revenue surged 33.3% year-over-year to $1.05 billion, handily beating estimates, while its assets under management (AUM) swelled to $572.4 billion, a 24% annual increase. Yet, the stock's 2.9% decline over the past week has sparked questions: Is this a short-term overreaction, or does it signal deeper structural concerns? Let's dissect the numbers and determine whether this correction is a buying opportunity.

The Earnings Story: Strong Fundamentals, A Missed Beat

Ares' Q2 results were a textbook example of a company defying expectations in some areas while underperforming in others. Revenue exceeded forecasts by $20 million, driven by robust management fees ($900.29 million, +24% YoY) and a 230% spike in other fees to $76.12 million. Fee-related earnings (FRE) climbed to $409.1 million, a 26% increase, showcasing the firm's ability to generate recurring cash flow.

However, the EPS miss—$1.03 versus the $1.11 estimate—highlighted headwinds. Performance income-related metrics, such as realized gains from the Credit Group ($435.49 million, -6.8% vs. estimates) and the Real Assets Group ($97.65 million, -131.3% growth but still below estimates), revealed volatility in non-recurring income. This divergence between revenue and earnings underscores the sector's sensitivity to market conditions, particularly in performance-based compensation.

Market Reaction: A Tale of Two Forces

The stock's 2.9% drop since the earnings report cannot be blamed solely on the EPS miss. Broader macroeconomic fears—such as a weak July jobs report, looming Fed rate cuts, and global trade tensions—have pressured financials and alternative asset managers alike. Ares' high Dynamic PE of 672x and its exposure to interest-sensitive credit strategies (e.g., floating-rate loans in its Credit Group) have made it particularly vulnerable to rate-driven volatility.

Yet, the company's fundamentals remain intact. Ares' AUM growth, driven by $26.2 billion in new capital commitments and a $150.8 billion dry powder balance, positions it to weather near-term turbulence. CEO Michael Arougheti's confidence in the GCP International acquisition and the firm's fundraising pipeline suggests management sees a path to sustained growth.

Valuation: A Premium for a Reason

Ares trades at a premium to its peers, with a P/E of 108.50 and a P/S of 8.79. While these multiples appear lofty, they are justified by the company's 53.92% revenue growth rate and its dominance in high-demand sectors like infrastructure and private credit. The firm's fee-related earnings, which grew 26% to $409.1 million, are a testament to its recurring revenue model—a rarity in the alternative asset space.

However, profitability metrics like a 2.01% net margin and a 4.46 debt-to-equity ratio raise red flags. For long-term investors, the key question is whether Ares can convert its AUM growth into consistent earnings. The recent EPS miss and declining performance income suggest that this transition is not yet complete.

The Strategic Buy? Assessing the Correction

The stock's pullback to $180.95—just below its 30-day moving average—presents a nuanced opportunity. On one hand, the 7.21% EPS miss and broader macroeconomic risks warrant caution. On the other, the company's $572.4 billion AUM, $409.1 million FRE, and $1.12 dividend (yielding ~0.6%) offer a compelling value proposition for investors who believe in the long-term secular trends driving private credit and alternatives.

Technical indicators also suggest a potential inflection point. A break below the $174.38 support level could test the 52-week low of $110.63, but a rebound above $181.49 might reignite bullish momentum. Historically, ARES has demonstrated a positive response to support levels, with a 57.79% win rate over 3 days, 62.32% over 10 days, and 72.57% over 30 days. The maximum return observed was 7.90% on day 59, suggesting a strong likelihood of positive movement when support levels are reached. For those with a 6-12 month horizon, options like ARES20250919P180 offer leveraged exposure to a potential rebound.

Final Verdict: Buy for the Long Haul, But With Caution

Ares Management's Q2 earnings and subsequent stock price decline reflect a company navigating a challenging macroeconomic environment while maintaining a strong growth trajectory. For long-term investors, the correction is a chance to buy into a leader in a sector poised for expansion, particularly as demand for yield-driven strategies like private credit and real assets grows.

However, this is not a no-brainer. The firm's profitability headwinds, interest rate sensitivity, and premium valuation require careful monitoring. If you're willing to stomach near-term volatility for a potential multiyear payoff, Ares could be a strategic addition to a diversified portfolio. But if the Fed's rate cuts or a global slowdown accelerate, the stock's high leverage to interest rates could amplify losses.

In the end, Ares is a play on the future of alternative assets—and for those who believe that future is bright, this correction might be the golden ticket.

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