TROW

Anyone interested in TROW at $115? They are currently trading at under 9 times ttm earnings. While their current earnings and net margins are at peaks, I think they look reasonable even at normalized earnings of $9-10/sh. During the great recession their earnings fell just over 30% between 2007-2009, which would put earnings expectations for a current recessionary period (if we’re in one) at $9/sh. The five year average earnings are $9/sh, while applying a net margin of 30% rather than 40% to current revenues gives us $10/sh. All signs point to normalized earnings in the $9-10 range. On a normalized basis they are trading in the 12-13 pe range, which is on the low end of their historical trading range. If they can grow earnings at 9% over the next decade from this normalized base we can expect returns in the 10% range. I think they start looking tempting under $100/sh. Thoughts?

PP

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Phoolish unless we go Japan-like for years it seems that would work out quite OK. I am continually shocked however at how low financial stocks fall in downturns. That never changes.

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I like TROW, too. 33% ROE with no debt, and a 3.6% dividend. I even bought a little yesterday, which was a mistake. The stock is down 6.6% today. The problem is the thing I feared: with stock and bond prices both down, assets under management are falling. TROW just reported that AUM declined 16% from Dec 31 to Apr 30. Apparently the decline in AUM, and potential decline in AUM, is not fully priced in yet.

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Able to get out of TROW with a 0.1% gain. Whew. TROW is very profitable, but I’ll wait until stock and bond prices have stopped falling before buying back in.

Able to get out of TROW with a 0.1% gain. Whew. TROW is very profitable, but I’ll wait until stock and bond prices have stopped falling before buying back in.

I did the same thing with SBUX in 2009. Bought it at $18, watched it go to $8, sold it when it came back to $18. Whew!

The prices above are not adjusted for the 2015 2:1 split.

Stock now is $75 down from a high of $126. Missed out on an 8 bagger at today’s price, 14 bagger at the high. Plus all the dividends.

My costliest investment mistake. Whew indeed!

For what it is worth investment managers are very cheap now. If you feel TROW is too risky, look at BLK or BAM, both larger and much more diversified. BAM is spinning off its fee-based asset management business later this year to get higher valuation. Or cross the pond for UK based Legal and General (LGGNY)

All good points. It’s easy to imagine that rising P/E will offset falling AUM, and that today is a good entry point. The attractive thing about TROW to me is the 33% ROE with n debt.