• If you are wondering whether Ares Management's current share price offers good value, you are not alone. This article will walk through what the numbers actually say about the stock.
• The share price closed at US$149.69, with returns of an 11.8% decline over the last 7 days, an 11.3% decline over 30 days, a 10.0% decline year to date, but a 100.8% gain over 3 years and a very large gain over 5 years.
• Recent moves in alternative asset managers and private credit firms have kept attention on how investors price fee related earnings and long-term fund commitments, and Ares Management sits squarely in that conversation. Broader sector news around fundraising conditions, deal activity and interest rate expectations has added extra scrutiny to how much investors are willing to pay for these cash flow streams.
• Ares Management currently scores 1 out of 6 on our valuation checks, which suggests some parts of the market are pricing the business quite optimistically. Next we will compare several valuation methods, then finish with a simple framework that can help you judge whether that score really fits your own view of value.

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

Approach 1: Ares Management Excess Returns Analysis

The Excess Returns model looks at how much profit Ares Management can earn above the return that shareholders require, based on its equity base. Instead of focusing on cash flows, it starts with book value per share, an estimate of sustainable earnings, and the cost of equity.

For Ares Management, book value is $13.68 per share and stable earnings per share are estimated at $6.75, based on weighted future Return on Equity estimates from 4 analysts. The model applies a cost of equity of $2.69 per share, which implies an excess return of $4.06 per share. Average Return on Equity is 24.05%, and stable book value is projected at $28.08 per share, based on weighted future Book Value estimates from 2 analysts.

Running these inputs through the Excess Returns framework produces an intrinsic value estimate of about $92.24 per share. Compared with the recent share price of US$149.69, this implies the stock is 62.3% overvalued on this measure.

Result: OVERVALUED

Our Excess Returns analysis suggests Ares Management may be overvalued by 62.3%. Discover 888 undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Ares Management Price vs Earnings

For a profitable company like Ares Management, the P/E ratio is a useful shorthand for how much investors are willing to pay for each dollar of earnings. It connects directly to what you actually receive as an owner, the earnings per share, rather than just sales or accounting equity.

What counts as a reasonable P/E depends on how investors view growth potential and risk. Higher expected growth or lower perceived risk can support a higher P/E, while slower growth or higher risk tend to justify a lower one.

Ares Management currently trades on a P/E of 64.44x. That is well above the Capital Markets industry average of 24.41x and the peer average of 14.49x. Simply Wall St also calculates a proprietary “Fair Ratio” for Ares Management of 21.81x, which reflects factors such as its earnings profile, industry, profit margins, market cap and company specific risks.

This Fair Ratio can be more useful than a simple peer or industry comparison because it adjusts for those company specific characteristics instead of assuming all Capital Markets firms deserve the same multiple. Compared with the current P/E of 64.44x, the Fair Ratio of 21.81x suggests the shares are pricing in a much richer earnings multiple than this framework implies.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Ares Management Narrative

Earlier we mentioned that there is an even better way to understand what you are paying for, so let us introduce you to Narratives, a simple way to attach your own story about Ares Management to the numbers behind its fair value and your estimates for future revenue, earnings and margins.

A Narrative links three pieces together: how you see the company, the forecast that view implies, and the fair value that follows from those assumptions. All of this appears in one place on Simply Wall St’s Community page, which is used by millions of investors.

Instead of only reacting to a headline P/E, you can use Narratives to compare your fair value with the current share price to help assess whether your view is closer to a buy, hold, or sell stance. That view keeps updating when fresh news, earnings, or other data arrive.

For example, one Ares Management Narrative might assume very strong long term fund growth and assign a high fair value, while another might factor in more moderate fundraising conditions and reach a much lower fair value. You can see both side by side as the facts change over time.

Do you think there's more to the story for Ares Management? 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.