New York City-based Investment management company Blackstone Inc. (BX) invests in alternative energy, equity, and multi-asset class strategies, real estate, and hedge fund solutions. The company announced last Friday that it would invest approximately $3 billion in the largest private renewable energy company Invenergy Renewables Holdings. 

While the deal has garnered significant investor attention, shares of the asset manager have tumbled 16.3% over the past month. The stock closed its latest trading session at $116.65, 22.1% below its 52-week high of $149.78.

Although BX delivered blockbuster third-quarter earnings with its capital metrics hitting record levels and its total AUM increasing 25% year-over-year, the stock’s premium valuation may dampen its prospects in the coming months. Also, BX is currently trading below its 50-day moving average of $136.19 but higher than its 200-day moving average of $112.07, which indicates some bearishness.

Here is what could influence BX’s performance in the upcoming months:

Renewable Energy Investment

On Jan. 7, BX announced that the funds managed by Blackstone Infrastructure Partners agreed with Caisse de dépôt et placement du Québec (CDPQ) and Invenergy to  an equity investment of nearly $3 billion in Invenergy Renewables Holdings LLC. Because BX is committed to investing in the clean energy sector and is increasingly focused on sustainability, the company is well-positioned to boost its growth.

Strategic Acquisition

Last month, BX’s Blackstone Energy Partners agreed to acquire Irth Solutions, a leading cloud-based SAAS solutions provider. The company’s acquisition plan is consistent with its focus on investing in organizations that support critical infrastructure and the global energy transition. In addition, this should enhance BX’s sustainable operations and strengthen its portfolio.

Mixed Financials

During the third quarter, ended Sept. 30, 2021, BX’s management and advisory fees revenue rose 25.3% year-over-year to $1.32 billion, while its interest and dividend revenue grew 32.3% from the prior-year quarter to $35.05 million. The company’s net income came in at $3.21 billion for the quarter, up 88.6% year-over-year. But its unrealized revenue under principal investments declined 37.8% from its year-ago value to $183.75 million. BX’s total other income fell 6% over this period.

The investment management firm’s 72.7% trailing-12-month gross profit margin is 15.2% higher than the 63.1% industry average. But its 25.7% net income  is 14.5% lower than the 30.1% industry average of 30.1%.

Premium Valuation

In terms of forward non-GAAP P/E, BX’s 27.39x is 132.6% higher than the 11.78x industry average. Also, the stock’s 36.66x forward Price/Cash Flow is 266.1% higher than the 10.01x industry average. And its 8.06x and 14.67X respective forward Price/Sales and Price/Book of 8.06x and 14.67x are higher than the 3.54x and 1.30x industry averages.

POWR Ratings Reflect Uncertainty

BX has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. BX has a D grade for Value. The stock’s stretched valuation is in sync with this grade.

In terms of Stability grade, the company has a C. This justifies its relatively high beta of 1.35.

However, BX has a Quality grade of B, which is consistent with its higher than industry gross profit margin.

In addition to the grades I have highlighted, one can check out additional BX ratings for Growth, Momentum, and Sentiment here. The stock is ranked #11 of 36 stocks in the C-rated Private Equity industry.

Bottom Line

BX’s recent investments and acquisitions, which are consistent with the broader energy transition, could help the company increase its profits dramatically and benefit the stock significantly. While its diversified portfolio has bolstered investor optimism in the stock, the alternative asset manager’s higher-than-industry valuation multiples could cause its stock price to dip further. Therefore, we think investors should wait for its valuation to stabilize before investing in the stock.

How Does Blackstone Inc. (BX) Stack Up Against its Peers?

While BX has an overall C (Neutral) rating in our proprietary rating system, one might want to check out its industry peers with B (Buy) ratings: Brookfield Business Partners L.P. (BBU) and Fidus Investment Corporation (FDUS).

BX shares fell $1.10 (-0.94%) in premarket trading Monday. Year-to-date, BX has declined -10.90%, versus a -2.41% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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