Apollo Global Management (NYSE: APO) stock price has done well this year as investors cheer its performance. It has soared by over 31% this year and 50% in the past 12 months. It has also been a highly successful stock as it jumped by over 405% in the past decade.
Strong growth continues
Apollo Global Management has become one of the fastest-growing companies in the financial services industry. It is one of the pioneering private equity companies that has mastered the art and science of generating strong returns for its shareholders.
A good example of this is in its Yahoo deal. In 2021, the company paid $5 billion to acquire Verizon Media, the parent company of Yahoo and AOL. After that, it sold the Yahoo trademark license to Softbank in a $1.6 billion deal.
Apollo then made a series of acquisitions in a bid to boost key Yahoo brands like Finance and Sports. Today, these brands have become more valuable and analysts believe that Apollo will make a fortune when it finally sells or lists the brand.
Apollo has also engineered other situations that have made it one of the most valuable brands in the industry. While it is known as a private equity company, it is essentially a private credit brand. It has over $501 billion in private credit assets and over $170 billion in private equity assets.
Private credit is an important part of the financial services industry. With banks are operating in a strict market environment, companies like Apollo and Blackstone have stepped in the gap to provide the required financing. These firms mostly provide these funds to large and medium-sized companies across all sectors. Apollo had over $118 billion in originations in the first quarter.
Apollo has also benefited from its insurance business, which happened through its acquisition of Athene. Athene is a company that provides long-term investment solutions to thousands of individuals. Its main solution is its retirement and annuities business.
Its benefit is that customers pay annuity premiums and then expect to receive benefits in many years. In this period, Athene invests the money and generates strong returns for itself. Athene now has over $23 billion in regulatory capital.
Strong earnings growth
Apollo Global Management has had spectacular growth metrics in the past few years. Its annual revenue has risen from over $2.8 billion in 2019 to over $31.9 billion. Most of this growth was because of one-off events. Even so, analysts expect that its revenue will be $15.7 billion and $18.4 billion in 2024 and 2026, respectively.
The most recent results confirmed that the company was growing as the management hopes to get to $1 trillion in assets under management.
Its revenue rose to $7 billion in the first quarter from $5.3 billion in the same period in 2023. This growth was driven by the $3.5 billion in net investment income. Its net income rose from $1.5 billion to over $1.76 billion.
Analysts expect the Thursday’s results will show that its revenues rose to $3.8 billion in the second quarter followed by $4.07 billion in Q3. Most analysts also have a buy rating on Apollo, which they expect the stock will rise from the current $122 to $132.
Meanwhile, despite its strong growth, Apollo is not highly overvalued. It has a forward P/E ratio of 16.5, lower than the S&P 500 index, which has a multiple of 21. In real terms, Apollo is valued at over $69 billion while making over $5 billion in net profits annually. If you bought it today, and if the growth continues, it means that it should take less than 14 years to pay yourself back.
Concerns remain
Still, despite its strong numbers, there are concerns about the company, especially in the private credit business. First, there are calls for more regulations in the industry, a move that could raise costs in the coming years.
Second, there are concerns that the boom in private credit is losing steam, a move that could hurt the company since it is being valued mostly for its credit segment.
Apollo stock price analysis
APO chart by TradingView
The other APO risk is that the stock has become highly overbought and could be ripe for a correction in the coming weeks. On the weekly chart above, we see that the Relative Strength Index (RSI) and the Stochastic Oscillator have moved to the overbought level.
When an asset is in the overbought zone, it could be a sign of two things: growing momentum or that it is ripe for a pullback. To make matters worse, it has formed a bearish rising wedge chart pattern, a popular reversal sign.
Therefore, I suspect that the stock will resume the downward trend in the coming days, especially after publishing its results on Thursday. If this happens, it could drop to $100.
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