Is The Carlyle Group Inc. (CG) the Cheap Asset Management Stock to Buy Now?

In the ever-evolving landscape of asset management, identifying undervalued stocks can be a game-changer for income-seeking investors. The Carlyle Group Inc. (CG) has recently caught the attention of many, raising the question: Is it the cheap asset management stock to buy now? Let's delve into the financial metrics, performance indicators, and market dynamics to find out.

Financial Metrics and Performance Indicators

First, let's examine the key financial metrics that suggest CG might be undervalued:

1. Price-to-Earnings (PE) Ratio: The trailing PE ratio for CG is 15.93, while the forward PE ratio is 10.58. These ratios are relatively low compared to the industry average, indicating that the stock may be undervalued. A lower PE ratio suggests that investors are paying less for each dollar of earnings, which can be a sign of undervaluation.

2. Price-to-Book (PB) Ratio: The PB ratio for CG is 2.48. This ratio is also relatively low, suggesting that the stock may be undervalued compared to its book value. A lower PB ratio indicates that the stock is trading at a discount to its net asset value.

3. Dividend Yield: CG pays an annual dividend of $1.40, which amounts to a dividend yield of 3.17%. This dividend yield is higher than the average yield for the asset management sector, suggesting that the stock may be undervalued. A higher dividend yield can indicate that the stock is trading at a discount to its intrinsic value.

4. Return on Equity (ROE): The ROE for CG is 17.99%. This is a strong indicator of the company's profitability and efficiency in generating returns for shareholders. A high ROE suggests that the company is effectively using its equity to generate profits, which can be a sign of undervaluation.

5. Analyst Consensus: According to 15 analysts, the average rating for CG stock is "Buy." The 12-month stock price forecast is $51.77, which is an increase of 14.01% from the latest price. This positive analyst sentiment and price target suggest that the stock may be undervalued.

6. Financial Performance: For the fourth quarter and full-year ended December 31, 2024, CG reported income before provision for income taxes of $265 million and $1.4 billion, respectively, and a margin on income before provision for income taxes of 25.7% for both periods. These strong financial results indicate that the company is performing well and may be undervalued.

7. Asset Management: With $441 billion of assets under management as of December 31, 2024, CG has a significant presence in the asset management sector. This large asset base suggests that the company has a strong competitive position and may be undervalued.

8. Market Cap and Enterprise Value: CG has a market cap of $16.24 billion and an enterprise value of $23.18 billion. These valuations are relatively low compared to the company's assets under management and financial performance, suggesting that the stock may be undervalued.

Comparison to Peers

Carlyle's recent financial performance, as reported for the fourth quarter and full-year ended December 31, 2024, shows strong results. For the full-year 2024, Carlyle reported income before provision for income taxes of $1.4 billion, with a margin on income before provision for income taxes of 25.7%. This performance indicates that Carlyle has been able to maintain a consistent margin, which is a positive sign of its operational efficiency and profitability.

To compare Carlyle's performance to its peers in the asset management industry, we can look at the broader trends and performance metrics of other major firms. For instance, the article mentions that "surging revenue from asset management businesses appeared to lift the spirits of private equity's Big Four firms." This suggests that Carlyle is not alone in experiencing strong financial performance, as other major players in the industry are also benefiting from increased revenue and profitability.

Additionally, the article highlights that "the middle market drove the increase in the monetization of portfolio company investments." This indicates that Carlyle's focus on the middle market, as part of its investment strategy, is aligned with industry trends and has contributed to its strong financial performance.

Furthermore, Carlyle's Chief Executive Officer, Harvey M. Schwartz, stated that "Carlyle delivered a strong 2024, meeting every financial target we set, including record Fee Related Earnings and FRE margin, and robust inflows." This statement underscores Carlyle's ability to outperform its targets and maintain a strong financial position, which is a testament to its competitive edge in the asset management industry.

Market Dynamics and Future Outlook

The asset management sector is currently experiencing a surge in revenue from asset management businesses, which is lifting the spirits of private equity's Big Four firms. Carlyle, with its strong financial performance and significant asset base, is well-positioned to capitalize on this trend. The company's focus on the middle market and its ability to maintain a consistent margin suggest that it has a strong competitive position in the industry.

However, it is important to note that the asset management sector is subject to various risks and uncertainties, including market volatility, regulatory changes, and competition. Investors should carefully consider these factors before making any investment decisions.

Conclusion

In conclusion, the low PE and PB ratios, high dividend yield, strong ROE, positive analyst consensus, strong financial performance, significant asset management, and relatively low market cap and enterprise value all suggest that The Carlyle Group Inc. (CG) may be currently undervalued in the asset management sector. With its strong financial performance and competitive position, CG could be a cheap asset management stock to buy now. However, investors should carefully consider the risks and uncertainties associated with the asset management sector before making any investment decisions.