A lot of stocks that come to market soar on speculation on what they could be, but then they sink when their earnings donʻt follow.
However, that is not the case with AssetMark Financial (NYSE:AMK), a company that has generated increasing earnings growth since it went public in 2019 — even though its returns have not followed.
Thus, this is certainly a stock to keep an eye on, as it is a dominant player in its niche and has posted consistent revenue and earnings gains over the past few years.
Growth in asset management outsourcing
AssetMark is a major player in a corner of the asset management universe that provides what are called turnkey asset management programs or TAMPs. As such, AssetMark provides its clients, primarily independent financial advisors, with various asset management services through its platform. That could mean outsourcing the entire asset management function to clients or any parts of it, like analytics, portfolio management, back-office support, research, reporting, communications, and compliance, among other services.
The company generates revenue mostly from fees based on the amount of assets on its platform, and those assets have been growing. In September, it had $100 billion on its platform, up 25% year over year and up 15% from September 2021 — before the 2022 bear market.
Now in 2023, the asset totals are helped by a rising stock market but also from the company adding more advisors to the platform. In the second quarter, AssetMark added 188 new advisors and $1.7 billion of net flows. It reached $100 billion of platform assets for the first time in Q2 and has maintained that through September. Overall, the company had 9,323 advisors on its platform at the end of the second quarter.
On the top line, it saw a 21% year-over-year increase in revenue in the second quarter to $183 million. AssetMark also recorded a 27% jump in net income to $32.9 million.
Like all asset managers, the direction of the stock market will impact its asset levels and revenue, but not to the same extent as others. Its services are often in higher demand when markets are down, as advisors and clients seek to reduce expenses and limit resources by outsourcing. For example, the stock was down 12% in 2022, a year when the S&P 500 was down 19% and the Nasdaq was off almost 33%. This year, AssetMark is up about 5% year to date.
“We thrive in empowering advisors to navigate the most challenging of market environments, have meaningful conversations with clients, and efficiently scale their businesses,” AssetMark CEO Natalie Wolfsen said earlier this year.
Why it could soar
AssetMark is one of the leaders in this growing niche market, which is expected to grow at a 25% compound annual growth rate over the next several years, according to industry reports. Among the potential tailwinds are a rapid increase in the number of high-net-worth individuals, a massive wealth transfer from the huge Baby Boomer generation to heirs, the need for the speed and efficiency that TAMPs can provide to advisors through their platforms, and just an overall increase in financial advisory services.
To that point, the roughly $31 trillion financial advisory market is expected to grow at a 15% clip between now and 2031, so TAMPs have a great opportunity to grow with it.
AssetMark has shown consistent earnings growth and efficiency, with an operating margin of 26%. It is also trading at a fair valuation right now, with a price-to-earnings ratio of 16 and a forward P/E of 9.8.
The company has navigated some difficult markets in recent years, and with a consensus price target of $33, which would be a 37% rise over the current price, it is in a good position to take off.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.