Apollo Global Management Stock Gives Every Indication Of Being Possible Value Trap
- By GF Value
The stock of Apollo Global Management (NYSE:APO, 30-year Financials) gives every indication of being possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $57.41 per share and the market cap of $13.3 billion, Apollo Global Management stock appears to be possible value trap. GF Value for Apollo Global Management is shown in the chart below.
The reason we think that Apollo Global Management stock might be a value trap is because Apollo Global Management has an Altman Z-score of 1.36, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Apollo Global Management has a cash-to-debt ratio of 0.19, which which ranks worse than 81% of the companies in Asset Management industry. The overall financial strength of Apollo Global Management is 4 out of 10, which indicates that the financial strength of Apollo Global Management is poor. This is the debt and cash of Apollo Global Management over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Apollo Global Management has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $6.1 billion and earnings of $7.61 a share. Its operating margin of 54.41% better than 75% of the companies in Asset Management industry. Overall, GuruFocus ranks Apollo Global Management's profitability as fair. This is the revenue and net income of Apollo Global Management over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Apollo Global Management's 3-year average revenue growth rate is in the middle range of the companies in Asset Management industry. Apollo Global Management's 3-year average EBITDA growth rate is -24%, which ranks worse than 77% of the companies in Asset Management industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Apollo Global Management's ROIC was 16.24, while its WACC came in at 8.32. The historical ROIC vs WACC comparison of Apollo Global Management is shown below:
To conclude, the stock of Apollo Global Management (NYSE:APO, 30-year Financials) shows every sign of being possible value trap. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 77% of the companies in Asset Management industry. To learn more about Apollo Global Management stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
