About Apollo
“You know you got this…fantasy in your head about…getting out of ‘the life’ and turning the corporate world on its ears…what the (bleep) you gon’ do, except hustle?”
I’ll admit, this wasn’t probably a ballad that Shawn Cater (better known as Jay-Z) prepared for the founders and finance industry pioneers that started Apollo Global Management, but it is this exact tenacious business spirit that I love to my core.
Nothing given, everything earned, and sure, there might need to be some luck involved along the way, but in order to be a beneficiary of such luck, one needs to not only be in the game, but obsessed with it, and also obsessed with looking around at one’s surroundings and the people they are around every single day, many of which they are directly competing with, and unrelentingly not compete with, but outwork and outperform every single one of them.
Don’t get me wrong, investing is also about fun, but it is also about survival and alpha (the term meaning how much you beat the overall market by) and making the necessary sacrifices in order to achieve your goals and then some.
You have one life to live; why strive to be like everyone else?
Heck, that is seemingly what rather sketchy and eccentric billionaire founder Leon Black, co-founder and fellow billionaire who happens to be an owner of a handful of professional sports franchises including the Philadelphia 76ers, Washington Commanders, New Jersey Devils and Crystal Palace F.C., and meek yet sharp fellow founder Marc Rowan ended up doing and in a world full of those that were (and still are) risk averse.
They indeed turned the corporate world on its ears and proceeded to run it.
All originating from top universities and business schools, following their stints at their first respective Wall Street jobs following their studies, these three put their heads together and formally founded an investment firm (alternative asset management firm, if you want to get fancy with it) by the name of Apollo Global Management in 1990. Since its inception, the company has grown into an absolute giant with somewhere in the neighborhood of a stunning $651 billion in assets under management (AUM), specifically focusing in on the businesses of corporate credit, private equity and asset-driven investment (think real estate), not to mention the company’s growing retirement services and offerings through its flagship brand, Athene.
In breaking down each respective revenue generator of New York City-headquartered Apollo, credit is a formal investment category in which experienced and accredited managers such as Apollo invest in particular loans and/or debt instruments, the largest risk being that the loan sours due to the borrower, whoever it may be, not being able to pay back said loan and with that, there are different types (tranches) of loans that maintain their own inherent risk-reward profiles (I’ve actually read extensively on this, as one of my favorite books ever is Stephen Moyer’s “Distressed Debt Analysis: Strategies for Speculative Investors”), and in simple terms, investing in debt that is higher within a company’s capital structure (typically termed “senior secured”) is going to generally mean assuming less risk (and reward) than, say, a tranche of debt that is in a lower payment priority position in the same capital structure, typically termed “unsecured.”
The overall name of the credit game is for a company like Apollo to do tons of research on the debt issuing company in question and its finances and ultimate prospects of survival and subsequently (or not) buying promising bits and pieces of debt at a discount, and if the company turns its operations around and begins thriving again, that debt becomes a lot more valuable and they sell it for more than it was initially worth.
It’s still buying low and selling high, just a slightly more complex instrument.
Regarding its private equity division, Apollo’s private equity team, in short but accurate terms, buys companies (these are typically deemed as being good companies with bad balance sheets), takes various measures to improve them (this could mean selling off less profitable arms of the business, stripping it of many of its assets and/or so many other things) and then proceeding to sell them to a strategic buyer, of course, for more than they initial paid.
Lastly, in the real asset realm, Apollo Global Management invests in attractive real estate opportunities across the globe and also, through Athene, charges for access to the variety of insurance solutions it offers.
In addition to the profits garnered from these operations, Apollo, like practically any other investment manager charges a management fee and performance fees as well, the management fee typically being a constant fee for simply being a steward of other’s capital and performance fees being a percentage of the generated profits that are eventually distributed to its clients.
All initial things considered, that is Apollo and some other investing strategies in a nutshell, and while this introduction might’ve felt like you were drinking water out of a firehose, rest assured that the rest of this stock analysis article is going to be a bit more of a familiar format and the same quest of determining whether or not this company’s stock (NYSE: APO) is worth considering buying now and holding, well, you know, forever, remains.
Apollo’s stock financials
With a present net value of $65.99 billion (according to its current market capitalization), a directly correlated stock price of $99.60, a price-to-earnings (P/E) ratio of 11.42 and an annually issued dividend in the amount of $1.85, it can be seen from the very beginning that Apollo Global Management’s stock (NYSE: APO) is seemingly still trading at favorable, value-oriented levels, as according to the commonly held price-to-earnings ratio fair value rule of thumb, the investment firm’s stock is well below the fair value benchmark of 20, maybe, just maybe, presenting an opportunity to bite one’s way into the Apollo pie at a seemingly still affordable and reasonable level.
I also think it is somewhat fair to make the initial assumption that Apollo is going to be decent at extracting cash through its business activities, being that it does issue an annual dividend to its shareholders, however, it’ll help not if, but when I do some more digging into the company’s finances, specifically its cash flow statement, as I will do just a little later.
But first, as it pertains to the company’s balance sheet, Apollo Global Management’s executive team and board is tasked with managing and strategically deploying almost $313.5 billion in terms of total assets and maintaining just shy of $300 billion in terms of total liabilities, which, being that in many respects Apollo acts a major financial institution, similar to how a large bank operates, makes a great deal of sense overall, as this is a business that handles and facilitates a variety of loans and packages thereof, and thus it only adds up that a company has a lot of debt(s) floating around in and between the companies it services and is working with. In more respects than none, this was one of those situations where as long as Apollo had more total assets than liabilities on its books, I was going to be a happy camper.
And I am.
Regarding the condition of the company’s income statement, Apollo Global Management annual revenues since 2019 have been growing at a nothing-short-of-incredible rate, starting out at $2.9 billion in 2019 and rising nearly each and every year to its most recently displayed figure (on Charles Schwab’s platform) of an astonishing $30.7 billion, as reported in 2023. This seemingly unprecedented jump in annual revenue can largely be attributed to a handful of things, some of which include the company’s growth in the fees it has been earning from its clients, including a boost in fees generated from its Athene business segment, as well as remarkable strength in its credit segment, all contributing handsomely the company’s net top-line, not to mention that I also have my share of suspicions that Apollo’s private credit business has been doing fairly well given the alarmingly heightened amount of corporate bankruptcies throughout 2024 alone.
With respect to the company’s cash flow statement, Apollo’s total cash from operations throughout the exact same time period have been inching in the right(wards) direction too, establishing a relative base of -$1.6 billion (2020), largely due to the rapid increase in its investment it was forced to make across all of its business operations and segments given the initial onset of COVID-19, subsequently pulling itself up to a much more attractive recent high of $6.3 billion, as reported in 2023, swiftly dusting itself off in quite handsome fashion.
The fact of the matter is that growth has been an absolute and utter strength of Apollo Global Management, and an undeniable one at that.
Apollo’s stock fundamentals
Now, for one of this evening’s main courses, Schwab’s platform pegs Apollo’s net profit margin as a healthy 20.80%, and when incorporating some of the firm’s competitors into the picture, publicly traded private equity giant KKR has a reported net profit margin of 28.53%, along with famed investor and now interviewer David Rubenstein’s private equity firm by the name of The Carlyle Group with a net profit margin of -18.73% along with Blackstone’s most recently reported net profit margin of 37.08%, all being sort of scattered across the board, but one thing is for certain in that Apollo’s net profit margin is in a great state on its own, in essence consistently carving out $20.80 in cash for every $100 it makes in terms of revenue.
Should you buy Apollo stock?
In the context of the overall institutional investment landscape, I enjoy just how diversified yet interconnected Apollo Global Management’s revenue streams are, all of which in some form or another also being subject to oozing fees based on both simply managing other investor’s assets as well as taking a nice cut of the profits it seemingly has little to no issues in generating.
While I don’t think I need to dive into too much detail regarding the inherent risks surrounding a bank-like company and its revenue streams and their respective relations to instances of economic softening or other undulations, this enterprise has done an excellent job in many ways insulating itself from these inevitable pressures, as it seems to have a strategy for every economic season. A prime example of this is the fact that Apollo has a strong credit business, and funds and firms that deal in distressed debt and credit markets more broadly tend to have the most opportunities when other companies become overleveraged and all of the sudden find themselves in financial distress, and an established and high pedigree firm like Apollo can expeditiously insert itself into these sorts of special situations and ultimately into these company’s capital structures and find ways to produce excellent returns.
Given the company’s present valuation, its relative balance sheet strength, its growing revenues and cash flows and its fortified net profit margin, it seems most appropriate to offer this company’s stock a “buy” rating until further notice.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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