While the rise in popularity of private market investing has considerably reduced the number of new IPOs in the stock market, some investors have still managed to profit handsomely from the trend. And though there are ways for the average investor to gain access to private market investments, StepStone Group (STEP) is one distinctive way to benefit from the trend.
StepStone Group is a global investment firm that focuses on private markets, offering tailored investment solutions to institutional investors such as pension funds, insurance companies, and family offices. It provides access to a broad range of private market opportunities, including private equity, private debt, infrastructure, and real estate.
The firm helps clients build customized investment portfolios and also offers advisory services to guide investment strategies. StepStone’s approach involves several key areas: investing directly in new private market funds, partnering with private equity firms to co-invest in specific companies, acquiring existing private market assets through secondaries, and investing in private debt. Additionally, the company focuses on real assets like infrastructure and real estate, leveraging its global network and data-driven analysis to help investors achieve long-term, risk-adjusted returns.
Demand for StepStone Group’s services are growing nicely, and the company is expecting top line growth of 25.4% this year and 15.7% next year. Earnings too are expected to inflect upward, with analysts forecasting profits to climb 51.2% this year and 18.2% next year. StepStone Group’s industry positioning and growth forecasts haven’t gone unnoticed as the stock has appreciated nearly 100% over the last 12 months. But with a top Zacks Rank and rising earnings revisions there may still be upside in STEP stock.
Image Source: Zacks Investment Research
STEP Earnings Revision Trend
StepStone Group currently boasts a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions. Current quarter earnings estimates have increased by 2.5% over the last two months, while FY24 have umped by 8.3% and FY25 by 4.4%. Earnings estimates have been on the rise all year as analysts have come to realize that the demand for private market investments is likely to continue for the foreseeable future.
Image Source: Zacks Investment Research
Private Market Investments Growth
Private market investment firms like Private Equity, Credit and Infrastructure have truly been a juggernaut in the financial industry over the last several years, cannibalizing much of the asset management industry.
Private markets have swelled to over $13 trillion accounting for some 40% of all invested capital today in the US. And it’s no surprise they have garnered such assets as they have largely outperformed traditional investments, with lower volatility. Although it is debatable whether the volatility is actually lower, or it just appears lower because portfolios aren’t marked to market daily like public market investing, investors in these products enjoy the psychological advantage, nonetheless.
With private market investments expected to grow to $15 trillion by 2025 and $18 trillion by 2027, according to S&P Global, StepStone Group can expect client to continue to flock to them for consulting in the industry.
Should Investors Buy STEP Shares?
Although StepStone Group is trading at a valuation of 32.9x forward earnings—well above the industry average of 16.9x and its three-year median of 23.3x—it sits in a unique and rapidly growing vertical within the financial services industry. Furthermore, the stock offers a dividend yield of 1.6%, making it appealing to both growth and income-oriented investors.
Given the company's strong growth forecasts, favorable industry tailwinds, and rising demand for private market investment solutions, StepStone Group appears to offer substantial upside potential, particularly for investors looking to capitalize on the continuing expansion of private markets.
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