Key points
- Profits increased slightly between the calendar years 2016 and 2020
- Investment bank Berenberg recently cut the target price from 285p to 260p
- Its P/E ratio is higher than a close competitor
Formed by the December 2017 £11bn merger of Standard Life and Aberdeen Asset Management, Abrdn (LSE: ABDN) is an investment management company. Based in the UK, the firm manages around £532bn of assets. In the past year, however, the Abrdn share price has tanked 28%. My Motley Fool colleague, Christopher Ruane, recently remarked that the share price was nearing a 12-month low. I want to know if this is a good time to buy, or if I should stand aside instead. Let’s take a closer look.
Company expansion and the Abrdn share price
In December 2021, the firm announced it was buying the online investment service Interactive Investor from US private equity firm JC Flowers. The deal is believed to be worth around £1.5bn. Part of the attraction of Interactive Investor is its rate of growth, as it added around 46,000 new customers last year alone.
It appear that Abrdn wanted greater exposure to web-based trading, that is at the heart of Interactive Investor’s operations. Indeed, Abrdn CEO Stephen Bird remarked that the purchase would help the firm to deliver its “growth strategy”. The deal, so Abrdn hopes, will compliment its core business of asset management.
The purchase had a immediate positive impact on the Abrdn share price, which rose over 5% in one day. It appears to be a constructive move, given the popularity of web-based trading. Whether this move supports the company in the long term, however, remains to be seen.
Some mixed results
For the calendar years 2016 to 2020, the firm’s results have been a mixed bag. While profits have climbed slightly, from £789m to £838m, revenue has fallen substantially. This figure has slumped from £18.6bn to just £1.7bn. This collapse in itself worries me as a potential investor.
The trend resulted in investment bank Berenberg lowering its price target from 285p to 260p, citing scepticism about Abrdn’s “core investment management business”. It also stated that the Abrdn share price had underperformed UK indexes by 50% between 2017 and 2020.
What’s more, the company has a forward price-to-earnings (P/E) ratio of 16.21. On its own, this doesn’t really tell us that much, but comparison with a competitor can indicate if the business is over- or undervalued. Another big-hitter in the asset management sector, Schroders, has a forward P/E ratio of just 12.79. This makes me question if the Abrdn share price is even currently cheap.
While the purchase of Interactive Investor looks like the company is moving in the right direction, recent results suggest otherwise. I’m looking for bargain stocks that can provide long-term growth and Abrdn doesn’t fit the bill for me. I won’t be buying shares in this business.
Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has recommended Schroders (Non-Voting). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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