Federated Hermes has had an impressive run over the past six months as its shares have beaten the S&P 500 by 18.3%. The stock now trades at $52.81, marking a 35.8% gain. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy FHI? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does FHI Stock Spark Debate?
With roots dating back to 1955 and a pioneering role in money market funds, Federated Hermes (NYSE: FHI) is an investment management firm that offers a wide range of funds and strategies for institutional and individual investors.
Two Things to Like:
1. EPS Surges Higher Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Federated Hermes’s EPS grew at a spectacular 20.6% compounded annual growth rate over the last two years, higher than its 3.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
2. Stellar ROE Showcases Lucrative Growth Opportunities
Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.
Over the last five years, Federated Hermes has averaged an ROE of 24.7%, exceptional for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This shows Federated Hermes has a strong competitive moat.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
Unfortunately, Federated Hermes’s 3.5% annualized revenue growth over the last five years was sluggish. This wasn’t a great result compared to the rest of the financials sector, but there are still things to like about Federated Hermes.
Final Judgment
Federated Hermes’s merits more than compensate for its flaws, and with its shares topping the market in recent months, the stock trades at 11.5× forward P/E (or $52.81 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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