In the spirit of contributing ideas I offer TROW, along with the recently discussed ADBE (which I also like), as an investment idea. TROW has fallen 45% from its ATH of $224 last summer to a recent low of $123. TROW reached over $13/sh in earnings in 2021, rising from $4.84 in 2016. This tripling of earnings over five years generated a lot of excitement in the stock, with share prices quadrupling before the recent pull back. The question is, have the share prices fallen far enough and are the earnings sustainable at current levels to justify a purchase at these prices.

Currently TROW is telling at ~ 9 times ttm earnings with a 3.6% dividend yield. The shares rarely trade below 10 times ttm earnings, so on the surface the current price looks very attractive, however there have been significant jumps in earnings and the net profit rate that may not be sustainable. One way to check is to normalize earnings over some period of time. If we look at TROW earnings over the past five years they have averaged around $9/sh. Their net margins have averaged ~30% over the past decade, which would translate to $10/sh on $7.7 bil in revs in 2021. Using these normalized earnings numbers, it looks like TROW is selling at about 12 times normalized earnings. This is a not bad price that stands to offer ~ 11-12% annual rate of return from this normalized base assuming historical earnings growth rates. I believe this is a reasonably conservative estimate of likely outcomes.

What about the downside risk? Well the biggest risk is a market collapse leading to an exodus of investors from its funds, wrecking havoc on its profitability. Short of this nuclear scenario, I don’t see how a position in TROW can work out too badly at current prices.





Thanks for bringing up TRowe. On the surface the PE looks very reasonable. However, what we don’t know is how large redemptions are going to be from their funds in the near term and what that will do to profitability. In this market, there will be redemptions. Given the selloff that has already occurred in the stock and the nice 3%+ dividend yield, it might make a decent entry point if you are willing to hold for the long term. Of course, in the near term the stock could always get cheaper. Maybe buying in stages would make sense.



The major problem is that AUM keeps declining, moving out of higher margin mutual funds to lower margin accounts or leaving altogether. Plus value of AUM declines with the markets. Every monthly report on AUM flows in the last few quarters has resulted in stock being slammed.…

This is what Greg Warren of Morningstar has to say:

We’ve lowered our fair value estimate for T. Rowe Price to $165 per share from $195 after updating our valuation model to include lower levels of assets under management, revenue, and profitability in the near term given the market selloff that started during the first quarter of 2022. Our new fair value estimate implies a price/earnings multiple of 15.6 times our 2022 earnings estimate and 14.9 times our 2023 earnings estimate. For some perspective, during the past five (10) years, the company’s shares have traded at an average of 14.9 (16.6) times trailing earnings.
T. Rowe Price is highly leveraged to growth equities, which means that market losses are likely to remain elevated, and flows will remain weak, in the near term. Coming into 2022, management had noted that net flows this year would likely fall below long-term guidance of 1%-3% organic AUM growth, so none of this has come as much of a surprise. Our five-year forecast for organic AUM growth remains at 0% to positive 1% on average annually during 2022-26. Flows should pick up after 2025 when fewer baby boomers retire and millennials start hitting their peak earnings years, with net redemptions from retirement plans being less of a drag on flows.

They do have a substantial business in retirement portfolios including target-date funds, which tend to be stickier.

It may be wise to take a small position and wait for the bad news on AUM flows to reserve. Essentially try to catch the falling knife after it hits bottom.

And if you are intersted in asset managers, look at BlackRock, the biggest one, which has fallen almost as much as TROW in the last year, without having faced AUM outflows on the scale of TROW.


Thanks for the T Rowe Price suggestion. If you like financial services firms, you have quite a few to choose from. All have similar charts. Most have increasing earnings (except Robinhood), and recent sharp drop in share price.

You mention Assets Under Management, a valid concern. But market volatility has many going to see their financial advisor to see if they are on target or need to do something. Do you think these firms lose money in that deal?

No way, these folks are not risk takers. They make money a few pennies at a time on every transaction. If you are moving funds, they are making money.

Here’s my list–

Financial Services Companies

Ticker PE
Oppenheimer OPY 3
AMTD Idea Gp AMTD 3 Hong Kong
Evercore EVR 6
Goldman Sachs GS 6
Invesco IVZ 6
Stifel Finance SF 9
T Rowe Price TROW 9
State Street STT 9
Raymond James RJF 13
Blackrock BLK 15
Interactive Brokers IBKR 19
Charles Schwab SCHW 23.5
Market Axess Holdings MKTX 39.7 bonds
Robinhood HOOD none large loss

Lots to choose from. Likely to recover once they bottom – if you know when.

I’m sure there are many more. These came up looking on Yahoo Finance for brokers and managers of load mutual funds and etfs. No doubt I missed some.

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No doubt I missed some.

One you missed is UK asset/pension manager Legal & General, trading as LGGNY. It won’t be on your screen of US companies. Trades at considerably lower valuation than US comparables like BAM or BLK. Currently going for PE below 8 with an 8% yield to match.