GAMCO Investors Inc Offer Compelling ValueGBL) was founded 30 years ago by legendary value investor Mario Gabelli. The asset management company has $49 billion under management and other various services to it clients. GAMCO provides mutual funds, close-end funds, and private partnership. Mario Gabelli built the company from nothing an today his own 70 plus percentage of it and worth of a billionaire dollars. He is constantly one of the highest paid executives on Wall Street. However, unlike other executives on Wall Street Mr. Gabelli various funds return 15% plus percentage over the last 30 years.
The asset management business has a simple business model that produces high returns.
Currently the company stock is selling for $60.00/share that a slight discount to the company's estimated intrinsic value. The company has a 10- average return on equity of 19% and return on assets of 11%. GAMCO's above average returns on equity and assets reflect management abilities to effectively run the company. Mr. Gabelli has proven through is leadership that he's earns that high compensation. Like I said earlier in the article assets management companies have a light business model that produces excessive returns if ran well. Even if the company well ran horribly the company would still be profitable thank to the fees its chargers. This isn't the case with GAMCO which earns their fees and have great fund managers in place who have proven records.
However, GAMCO has well like of active management investment firms have seen assets under management shrink. The growth in passive ETF's and index funds plus active funds underperforming the market has lead to investors pulling money out of active funds. Even those GAMCO has seen at time its asset under management rise and than fall. GAMCO has since over the last few years it asset under management rise 78% from 2009 to 2013, rising from $25 billion to $47 billion. The company saw its asset under management double thanks to the company's various funds and other products that returns during that period. Investors are mostly short-term thinks an will move money in and out of active and passive fund based on which one is returning more.
I believe that this trend in investors pulling capital out of active funds won't last forever and GAMCO won't be hurt by it. The company over the last 10- years seen their revenues grow by 4.5%, their earnings by 9% and their dividend by 15%. GAMCO isn't a growing massively, however, the company is a stewart growing steadily and producing above average return to shareholders. The company has produced 10-year average operating earnings of $154.4 million or $6.03/share. Current the company is selling for 9.8x its 10-year operating earnings. The company has produced operating earning of $159.5 million or $6.23/share last years. At its current market price GAMCO is selling for 9x last years operating earnings. The company has a strong balance sheet with 298 million in cash which is double long-term debt. Current the company total liabilities excessed operating earnings by 3x and the company could pay off all its debt within five years. Based on the company strong fundamentals I believe that the company should sell for 12x its operating earnings. At 12x its operating earnings GAMCO stock would sell for $74/share and offering investors a operating earning yield of 10% as well.
Published on Nov 2, 2015By Cody Eustice
Posted in ...Market Commentary