Key Points
Apollo Global Management‘s (NYSE: APO) stock price is down about 15% in recent weeks. The decline is mainly tied to the annual reconstitution of the Russell indexes. Apollo, an alternative asset manager, was removed from the Russell 1000 Growth Index following the latest reconstitution, which took effect on June 26.
In the algorithms that Russell uses to reconstitute its various indexes, Apollo no longer exhibited the traits of a growth stock. Instead, it was deemed a value stock and was moved into the Russell 1000 Value Index.
Right after the rebalancing took effect, Apolloʻs stock price dropped sharply and is now trading at roughly $120 per share, off 18% year to date. But is this an opportunity to buy low on this growth-turned-value stock?
Growth to value
A big reason Apollo stock dropped is that it got kicked out of two massive growth exchange-traded funds (ETFs) — the $127 billion iShares Russell 1000 Growth ETF (NYSEMKT: IWF) and the $44 billion Vanguard Russell 1000 Growth ETF (NASDAQ: VONG). Losing invested capital from these sizeable funds, literally overnight, can leave a big dent in the stock price.
It did get added to two value ETFs — the $81 billion iShares Russell 1000 Value ETF (NYSEMKT: IWD) and the $20 billion Vanguard Russell 1000 Value ETF (NASDAQ: VONV). But combined, these two ETFs have almost $75 billion less in assets to invest than the two growth ETFs.
That aside, Apollo Global still has strong fundamentals, and this rebalancing could present an excellent buying opportunity.
Showtime for Apollo?
Apollo stock looks like a good buy right now, with some momentum following a strong first quarter. As an alternative asset manager, it invests in private equity, private debt, and other alternative investments. These assets tend to have a low correlation to stocks, often performing well when stocks don’t — like they did in the first quarter.
In Q1, Apollo had record fee-related income of $728 million, up 30% year over year, while adjusted net income rose 8% to $1.2 billion. Wall Street analysts project 21% revenue growth in 2026 and 14% growth in 2027. Earnings are expected to rise 6% this year and another 20% in 2027.
One concern that contributed to the sell-off was a June 22 Securities and Exchange Commission (SEC) filing that said Apollo was capping redemptions at 5%. This was most likely due to high redemption requests to its flagship fund, Apollo Debt Solutions, totalling 16.8% of the fund. This was sparked by heightened concerns among investors about problems in the private credit market. It’s the second quarter in a row that they’ve put redemption caps in place. While private credit has been resilient, it is something to watch.
Apollo is a good value on a forward earnings basis
Apollo’s price-to-earnings (P/E) ratio is high, but that’s because it took GAAP (generally accepted accounting principles) losses last quarter due to a high one-time offshore tax-related expense. But on a forward earnings basis, it is relatively cheap, trading at 13 times forward earnings.
Some 73% of Wall Street analysts rate it as a buy, with a median price target of $150 per share. That would suggest 25% upside.
I think reconstitution will benefit investors, as they can now get this value stock at a discount.
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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
