Financial Analysis: Fifth Street Asset Management (FSAM) versus Ares Management (ARES)

Fifth Street Asset Management (OTCMKTS: FSAM) and Ares Management (NYSE:ARES) are both small-cap finance companies, but which is the superior investment? We will compare the two companies based on the strength of their profitability, earnings, dividends, risk, analyst recommendations, valuation and institutional ownership.

Analyst Recommendations

This is a breakdown of current ratings and price targets for Fifth Street Asset Management and Ares Management, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Fifth Street Asset Management 0 0 0 0 N/A
Ares Management 0 1 5 0 2.83

Ares Management has a consensus price target of $23.67, suggesting a potential upside of 3.12%. Given Ares Management’s higher probable upside, analysts plainly believe Ares Management is more favorable than Fifth Street Asset Management.

Profitability

This table compares Fifth Street Asset Management and Ares Management’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Fifth Street Asset Management -20.92% -626.41% -2.71%
Ares Management 4.98% 39.54% 6.11%

Earnings & Valuation

This table compares Fifth Street Asset Management and Ares Management’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Fifth Street Asset Management $82.55 million 0.82 -$1.53 million ($0.14) -9.43
Ares Management $1.20 billion 1.57 $111.80 million $0.56 40.98

Ares Management has higher revenue and earnings than Fifth Street Asset Management. Fifth Street Asset Management is trading at a lower price-to-earnings ratio than Ares Management, indicating that it is currently the more affordable of the two stocks.

Dividends

Fifth Street Asset Management pays an annual dividend of $0.13 per share and has a dividend yield of 9.8%. Ares Management pays an annual dividend of $1.64 per share and has a dividend yield of 7.1%. Fifth Street Asset Management pays out -92.9% of its earnings in the form of a dividend. Ares Management pays out 292.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Fifth Street Asset Management is clearly the better dividend stock, given its higher yield and lower payout ratio.

Insider & Institutional Ownership

8.6% of Fifth Street Asset Management shares are owned by institutional investors. Comparatively, 15.6% of Ares Management shares are owned by institutional investors. 85.4% of Fifth Street Asset Management shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Volatility & Risk

Fifth Street Asset Management has a beta of 0.34, indicating that its share price is 66% less volatile than the S&P 500. Comparatively, Ares Management has a beta of 1.23, indicating that its share price is 23% more volatile than the S&P 500.

Summary

Ares Management beats Fifth Street Asset Management on 12 of the 15 factors compared between the two stocks.

About Fifth Street Asset Management

Fifth Street Asset Management Inc. is an alternative asset manager. The Company provides asset management services to its investment funds (the Fifth Street Funds or the funds), which consist of Fifth Street Finance Corp. (FSC) and Fifth Street Senior Floating Rate Corp. (FSFR), both publicly-traded business development companies (together, the BDCs). Its segment provides asset management services to the Fifth Street Funds. The Company conducts all of its operations through its subsidiaries, Fifth Street Management LLC (FSM), Fifth Street CLO Management LLC (CLO Management) and FSCO GP LLC (FSCO GP). The funds, managed by the Company, provide financing solutions to small and mid-sized companies across their capital structures, mainly in connection with investments by private equity sponsors. It provides credit solutions across the capital structure, including one-stop financing, unitranche debt, senior secured debt, mezzanine debt, equity co-investments and venture debt financing.

About Ares Management

Ares Management, L.P. is an alternative asset manager. The Company offers its investors a range of investment strategies. It operates through three segments: Credit Group, Private Equity Group and Real Estate Group. The Credit Group segment manages credit strategies across the non-investment grade credit universe in the United States and Europe. It offers a range of credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, credit opportunities, structured credit investments and the United States and European direct lending. The Credit Group provides solutions for traditional fixed income investors. The Private Equity Group segment categorizes its investment strategies as corporate private equity, the United States power and energy infrastructure and special situations. The Real Estate Group segment manages public and private equity and debt strategies. The Real Estate Group manages both a value-add strategy and an opportunistic strategy.

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