T. Rowe Price Group, Inc. (NASDAQ:TROW) isn’t the best-known investment management company in the industry, but with more than half a trillion dollars under management, the company has a long history of serving its mutual-fund customers well. For T. Rowe Price Group, Inc. (NASDAQ:TROW) stock, the benefits of the long bull market in stocks and the forward-thinking nature of its no-load fund strategy have helped boost the company’s bottom line, and even as the competitive threat of exchange-traded funds have weighed on mutual-fund managers throughout the industry, recent market turmoil could give the company a chance to regain some of those who fled actively managed funds during the financial crisis. Let’s take a closer look at T. Rowe Price Group, Inc. (NASDAQ:TROW) to find out what’s been happening with it lately and how its stock can move higher.
Asset management: a winning business model
Shareholders of T. Rowe Price Group, Inc. (NASDAQ:TROW) and its peers have found that investing in asset management companies directly can be an even more lucrative proposition than investing in the funds that they offer. T. Rowe Price Group, Inc. (NASDAQ:TROW) stock has seen dramatic long-term growth, with average annual returns exceeding 20% over the past two decades.
The reason for that growth is simple: T. Rowe Price Group, Inc. (NASDAQ:TROW) collects management fees based on the amount of assets it manages. As the long bull market of the 1990s gained momentum, the company boosted its assets, and therefore its income. Meanwhile, even when bear markets temporarily sent its stock downward, T. Rowe Price rapidly recovered from those declines and started heading higher when the next advance for the stock market began.
Lately, though, T. Rowe Price hasn’t benefited as much from share-price gains. Competitor Invesco Ltd. (NYSE:IVZ) has managed to expand its margins and produce growth among its current lineup of funds, with exposure to a big range of markets that leaves it broadly placed to serve its customers’ needs. But for T. Rowe Price and peer Federated Investors Inc (NYSE:FII), investors haven’t been putting as much money to work in their funds as analysts had expected to see, and that has led to some growth shortfalls. Federated Investors Inc (NYSE:FII) in particular missed its earnings estimates in its most recent quarter, and analysts see growth there slowing to just 3%. T. Rowe Price has better prospects, retaining its double-digit revenue growth, but after a substantial move upward at the beginning of the year, its stock has treaded water.