CG Shares Fell Today. Let's Take a Closer Look at Their Valuation.

Standing out among the Street's worst performers today is The Carlyle, an asset management company whose shares slumped -3.2% to a price of $36.21, which is 13.23% below its average analyst target price of $41.73. The average analyst rating for the stock is buy. CG lagged the S&P 500 index by -2.6% so far today and by -17.7% over the last year, returning -25.5%.

The Carlyle Group Inc. is an investment firm specializing in direct and fund of fund investments. The company is included in the financial services sector, which includes a wide variety of industries such as credit services, mortgage, banking, and insurance. Owing to this variety and the fast pace of innovation within these industries, investors may struggle to make sense of this sector.

The Carlyle's trailing 12 month P/E ratio is 7.6, based on its trailing EPS of $4.78. The company has a forward P/E ratio of 9.5 according to its forward EPS of $3.81 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the financial services sector has an average P/E ratio of 13.34, and the average for the S&P 500 is 15.97.

One limitation P/E ratios is that they don't tell us to what extent future growth expectations are priced into Carlyle's market valuation. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. On the other hand, it's possible for companies with high P/E ratios to be fairly valued in terms of their growth expectations.

Dividing The Carlyle Group's P/E ratio by its projected 5 year earnings growth rate gives us its Price to Earnings Growth (PEG) ratio of -1.07. Since it's negative, either the company's current P/E ratio or its growth rate is negative -- neither of which is a good sign.

When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Carlyle was $1,749,600,000.00 as of its last annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, CG is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 344.9% and has on average been $616,666,666.70.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Carlyle's P/B ratio is 2.2 -- in other words, the market value of the company exceeds its book value by a factor of more than 2, so the company's assets may be overvalued compared to the average P/B ratio of the Financial Services sector, which stands at 1.95 as of the third quarter of 2022.

Since it has a very low P/E ratio, an average P/B ratio, and an irregular stream of positive cash flows with an upwards trend, Carlyle is likely fairly valued at today's prices. The company has strong growth indicators because of a PEG ratio of less than 1 and average net margins with a positive growth rate. We hope you enjoyed this overview of CG's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.