Why Apollo Global Management stock is drawing attention now

Apollo Global Management (APO) is back on investors’ radar after a recent pullback, with the stock down about 5% over the past week and 1.8% in the latest session.

Those short term moves sit against mixed return figures, including a decline of roughly 12.3% year to date, a modest fall over the past year, and gains over the past month and past 3 months.

At the current share price of $128.51, Apollo Global Management’s recent pullback, including a 1-day share price decline of 1.83% and 7-day drop of 5.07%, contrasts with its 3-year total shareholder return of 105.97%, suggesting long term holders have still seen strong compounding even as short term momentum has cooled.

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With Apollo Global Management shares recently under pressure and trading at a discount to the average analyst price target, the key question is whether this pullback is a genuine opportunity or if the market is already pricing in future growth.

Price-to-Earnings of 64.1x: Is it justified?

On a P/E of 64.1x, Apollo Global Management looks expensive relative to both its own estimated fair P/E of 25x and peers, despite the recent pullback in the share price to $128.51.

The P/E ratio compares the current share price with earnings per share and is a quick way of gauging how much investors are paying for each dollar of profit. For Apollo Global Management, a 64.1x P/E implies the market is paying a high premium for its earnings, especially when set against its reported net income of $1,155.0m on revenue of $31,287.0m and a Return on Equity of 7.7%, which is described as low.

Relative to the US Diversified Financial industry average P/E of 17.9x and the peer average of 30.3x, Apollo Global Management is trading at more than double the wider sector level, and materially above an estimated fair P/E of 25x that the market could eventually gravitate toward if expectations cool.

Result: Price-to-Earnings of 64.1x (OVERVALUED)

However, the story could change quickly if annual revenue, which recently declined about 95%, keeps falling, or if the relatively low 7.7% Return on Equity compresses further.

Another way to look at value

While the P/E points to an expensive stock, the SWS DCF model tells a slightly different story. On this view, Apollo Global Management at $128.51 is trading above an estimated future cash flow value of $113.08, suggesting the shares still look rich even when cash generation is front and center. So which signal do you trust more?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Apollo Global Management for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mixed signals on price and fundamentals leave you unsure, move quickly to review the underlying data, weigh the trade off between caution and opportunity, and decide how you feel about the stock using 1 key reward and 2 important warning signs

Looking for more investment ideas?

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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.