I lately ran a inventory display for corporations with giant dividend yields and low price-to-earnings (P/E) ratios.
Popping up on that record was one of many world’s high funding companies: Carlyle Group (Nasdaq: CG).
On the finish of 2022, Carlyle managed a whopping $373 billion in belongings, which had been cut up throughout its personal fairness, credit score and world funding options funds.
Over the previous 18 months, Carlyle’s inventory worth has had a tough journey. And after peaking late in 2021, shares of Carlyle have been lower in half.
That share worth drop is why the corporate is now popping up on my inventory display.
For 2022, Carlyle earned $3.35 per share. With a present buying and selling worth of about $31, the inventory is buying and selling at simply 9.25 occasions earnings.
That appears attention-grabbing… Single-digit P/E ratios at all times do.
So too does Carlyle’s present dividend yield, coming in at 4.2%.
That alone is an honest funding return.
On the floor, these numbers make Carlyle appear to be a compelling purchase.
After I dig a bit of deeper, although, the story turns into significantly extra sophisticated…
Particularly, it’s very laborious to foretell how a lot cash Carlyle goes to make every year.
Some years, the corporate makes some huge cash. Different years, it doesn’t.
Over the previous 5 years, Carlyle’s earnings per share have regarded like this…
These earnings don’t precisely create a clean chart that strikes upward and to the suitable!
Carlyle’s earnings are so lumpy as a result of the funding supervisor earns efficiency charges when beneficial properties are realized and if investing efficiency hurdles are met.
When investments increase, so too do Carlyle’s earnings.
On the flip facet, when investments lag, the efficiency charges fall off.
That isn’t an issue essentially. In truth, earnings cyclicality is simply the character of Carlyle’s enterprise. Over time, the corporate makes some huge cash.
However this inconsistency makes it laborious for exterior traders to foretell the place Carlyle’s earnings are going.
And in the event you can’t predict earnings with any accuracy, it turns into very laborious to find out whether or not the buying and selling worth of the inventory is a discount.
This unpredictability is why Carlyle has at all times traded at a slightly low P/E ratio traditionally.
Over the previous 5 years, Carlyle’s common P/E ratio has been 11.4 and its median P/E ratio has been 9.8.
With that context, the present 9.2 ratio that Carlyle is buying and selling at doesn’t appear to be such a screaming discount. It appears extra like what the inventory sometimes trades at.
I like this firm and its dividend. Over time, I feel it’ll do nicely because it grows belongings below administration.
Nonetheless, provided that the inventory trades proper in keeping with the place it traditionally has, it’s laborious for me to say that Carlyle is undervalued.
Due to this fact, The Worth Meter charges Carlyle Group as “Appropriately Valued.”
