StepStone Group Q3: Record High Earnings And Growth

2025-02-18 09:38:35 ET

Summary

• StepStone Group Inc. has shown stellar performance since its IPO in 2020, with significant growth in AUM and fee-related earnings.
• The company has a promising outlook with a growing trend behind alternative investments, but the current stock price appears overbought.
• Risks include competition and potential changes in tax laws affecting carried interest, which could impact the profitability and attractiveness of alternative investments.
• I rate STEP a Hold due to premium valuation, but encourage investors to monitor pullbacks for a more opportune time to invest.

I rate StepStone Group Inc. ( STEP ) a Hold, for capital appreciation focused investors who are looking for long-term buy and hold investments. While its performance since IPO in 2020 has been stellar to date, the recent price appreciation in 2024 has taken the stock value to being overbought. The overall business model and outlook of the company are excellent, in my view, so prudent investors may want to watch for a pullback in price to acquire shares. For investors that currently own shares, this stock, in my opinion, is one to hold on to as the company has plenty of runways to grow in the upcoming years. The most important factors that influence my opinion of the stock are:

• Recently reported fiscal Q3 was the “strongest quarter in StepStone’s history.”
• 21% organic CAGR on fee earning AUM over the past 5 years.
• Fee related earnings margin of 39%.
• Growing trend toward alternative investments including private markets, real estate, and infrastructure.
• Total return outperforming the S&P500 since IPO.

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