Franklin Resources’s 22.9% return over the past six months has outpaced the S&P 500 by 9.8%, and its stock price has climbed to $34.31 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Franklin Resources, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Franklin Resources Will Underperform?
Despite the momentum, we don’t have much confidence in Franklin Resources. Here are three reasons why BEN doesn’t excite us, plus one stock we’d rather own.
1. 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.
Over the last five years, Franklin Resources grew its revenue at a sluggish 3.2% compounded annual growth rate. This fell short of our benchmark for the financials sector.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Franklin Resources, its EPS declined by 1.6% annually over the last five years while its revenue grew by 3.2%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Haven’t Impressed
Return on equity (ROE) measures how effectively financial firms generate profit from each dollar of shareholder equity — a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.
Over the last five years, Franklin Resources has averaged an ROE of 7.6%, uninspiring for a company operating in a sector where the average shakes out around 10%.
Final Judgment
Franklin Resources falls short of our quality standards. With its shares outperforming the market lately, the stock trades at 11× forward P/E (or $34.31 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.
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