Bailey Pemberton
4 min read
BlackRock has seen its stock deliver a powerful run over the past few years, which naturally puts a spotlight on whether the current valuation is really backed by the returns the business earns on its capital. With the asset manager pushing deeper into areas like bitcoin-linked products, AI infrastructure financing and tokenized funds, the question now is how much of that ambition is already priced in.
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Over the past 3 years the share price has gained about 99.9%, so a lot of future expectations now hinge on how efficiently BlackRock can keep compounding the capital entrusted to it.
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Recent moves into products such as a bitcoin managed protection ETF, AI infrastructure financing platforms and tokenized money-market funds can influence both fee potential and capital intensity, which matter directly for the returns BlackRock earns on its equity base.
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What if you looked at BlackRock through its earnings instead? See why BlackRock’s 25.0x P/E tells a different valuation story.
For investors, the debate is whether a stock price around US$1,118 today is adequately supported by the returns BlackRock currently generates and can continue to generate on its capital.
If you want to test this same question about returns on capital across a wider set of assets tied to similar themes, scan through 55 AI infrastructure stocks.
Is BlackRock Still Cheap on Excess Returns?
The Excess Returns model looks at how much profit BlackRock generates over and above the return investors require on its equity. On this view, the firm is treated as a machine that starts with its book value and then either creates or destroys value based on the spread between its return on equity and its cost of equity.
For BlackRock, that spread is positive. Book value is $371.70 per share and the model assumes a stable book value of $403.84, while stable EPS is set at $69.73 per share based on analyst return on equity estimates. The implied cost of equity is $32.47 per share, with excess return at $37.26 per share and an average return on equity of 17.27%. The framework therefore assumes BlackRock continues to earn more on its equity base than investors demand. The Excess Returns projections put BlackRock’s estimated intrinsic value modestly above the current share price of $1,118.25. Because the push into bitcoin ETFs and AI infrastructure financing adds capital intensive growth opportunities, the market may be slower to fully reflect those modeled excess returns. Find out what BlackRock could be worth using our Excess Returns estimate.
