Pzena Investment Management (NYSE: PZN) and Ares Management L.P. (NYSE:ARES) are both small-cap finance companies, but which is the better investment? We will compare the two companies based on the strength of their earnings, valuation, institutional ownership, risk, profitability, analyst recommendations and dividends.

Dividends

Pzena Investment Management pays an annual dividend of $0.12 per share and has a dividend yield of 1.1%. Ares Management L.P. pays an annual dividend of $1.24 per share and has a dividend yield of 6.7%. Pzena Investment Management pays out 18.2% of its earnings in the form of a dividend. Ares Management L.P. pays out 169.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Volatility and Risk

Pzena Investment Management has a beta of 1.65, meaning that its stock price is 65% more volatile than the S&P 500. Comparatively, Ares Management L.P. has a beta of 1.25, meaning that its stock price is 25% more volatile than the S&P 500.

Profitability

This table compares Pzena Investment Management and Ares Management L.P.’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Pzena Investment Management 14.82% 12.93% 6.38%
Ares Management L.P. 5.86% 40.94% 7.01%

Valuation & Earnings

This table compares Pzena Investment Management and Ares Management L.P.’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Pzena Investment Management $122.22 million 1.55 $56.40 million $0.66 16.61
Ares Management L.P. $1.47 billion 2.68 $260.09 million $0.73 25.21

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

Institutional & Insider Ownership

17.4% of Pzena Investment Management shares are held by institutional investors. Comparatively, 14.7% of Ares Management L.P. shares are held by institutional investors. 55.9% of Pzena Investment Management shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Analyst Recommendations

This is a summary of current ratings and price targets for Pzena Investment Management and Ares Management L.P., as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Pzena Investment Management 0 1 0 0 2.00
Ares Management L.P. 0 1 7 0 2.88

Ares Management L.P. has a consensus price target of $21.00, indicating a potential upside of 14.13%. Given Ares Management L.P.’s stronger consensus rating and higher possible upside, analysts clearly believe Ares Management L.P. is more favorable than Pzena Investment Management.

Summary

Ares Management L.P. beats Pzena Investment Management on 11 of the 16 factors compared between the two stocks.

Pzena Investment Management Company Profile

Pzena Investment Management, Inc. is a holding company. The Company is the sole managing member of Pzena Investment Management, LLC. Pzena Investment Management, LLC is an investment management company. The Company also serves as the general partner of Pzena Investment Management, LP. The Company offers institutional investment products to public and corporate pension funds, endowments, foundations and certain commingled vehicles geared toward institutional investors. The Company also offers access to certain of its global and non-United States strategies through private placement vehicles and collective investment trusts. Pzena Investment Management, LLC is its operating company. Pzena Investment Management, LLC consists of Class A and Class B membership units.

Ares Management L.P. Company Profile

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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