• Wondering if Carlyle Group at around US$47.29 is offering value or asking you to pay up? This article breaks down what the current price might be implying.
• The stock is at US$47.29 after moves of 1.6% over the last week, 0.4% over the last month, a 22.3% decline year to date, and a 34.0% return over the past year. Recent performance gives a mixed picture for anyone thinking about entry points.
• Recent headlines have focused on Carlyle Group's role as a global alternative asset manager and its positioning within the broader capital markets sector. This helps explain why sentiment has been shifting over different time frames. These stories give context for both the recent pullback year to date and the stronger 3 year and 5 year returns of 71.5% and 39.4% respectively.
• Carlyle Group currently has a valuation score of 5 out of 6. Next up is a look at what that score reflects across different valuation methods and how an even richer picture of value emerges when you combine those models with a broader view of the business.

Approach 1: Carlyle Group Excess Returns Analysis

The Excess Returns model looks at how much value a company can create above its cost of equity, using its book value and expected profitability as the starting point. For Carlyle Group, the key inputs are a Book Value of $16.12 per share and a Stable EPS estimate of $9.38 per share, based on weighted future Return on Equity estimates from 4 analysts.

The model assumes an Average Return on Equity of 20.68% on a Stable Book Value of $45.36 per share, which is based on weighted future Book Value estimates from 2 analysts. With a Cost of Equity of $4.29 per share and an Excess Return of $5.09 per share, the Excess Returns framework suggests that projected earnings are comfortably above the required return that equity holders ask for.

Combining these inputs, the Excess Returns valuation points to an intrinsic value of about $129.46 per share. Compared with the current share price of about $47.29, this implies an intrinsic discount of roughly 63.5%. Under this approach, the stock screens as significantly undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests Carlyle Group is undervalued by 63.5%. Track this in your watchlist or portfolio, or discover 58 more high quality undervalued stocks.

Approach 2: Carlyle Group Price vs Earnings

For a profitable company like Carlyle Group, the P/E ratio is a useful way to think about what you are paying for each dollar of earnings. Investors typically accept a higher or lower P/E depending on what they expect for future earnings growth and how much risk they see in the business and sector, so there is no single “right” P/E level in isolation.

Carlyle Group currently trades on a P/E of 21.12x. This sits below the Capital Markets industry average P/E of 39.09x and below the peer average of 37.98x, which suggests the stock is priced more conservatively than many comparable names in the sector.

Simply Wall St’s Fair Ratio is a proprietary estimate of what a “normal” P/E could be for Carlyle Group, based on its earnings growth profile, profit margins, risk indicators, industry and market cap. For Carlyle Group, this Fair Ratio is 15.14x. Because it is tailored to the company’s own fundamentals rather than broad group averages, the Fair Ratio can give a more targeted reference point than simple peer or industry comparisons. With the actual P/E at 21.12x versus a Fair Ratio of 15.14x, the shares currently screen as trading above that tailored benchmark.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Carlyle Group Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives bring this to life by letting you attach a clear story about Carlyle Group to your own numbers, linking assumptions for future revenue, earnings and margins to a forecast and then to a Fair Value that you can compare with the current price to help decide whether the stock looks attractive or expensive right now.

On Simply Wall St’s Community page, Narratives are available as an easy tool that updates when new news or earnings arrive. An investor who agrees with a more optimistic view for Carlyle Group, such as a Fair Value around US$81.00 based on expectations for higher growth and margins, can see a very different Fair Value and decision signal from someone who aligns with a more cautious view closer to US$55.27, even though both are looking at the same company and the same live market price.

Do you think there's more to the story for Carlyle Group? 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.