Over the past three years Australia's premier investment bank, Macquarie Group Ltd (ASX: MQG), has been one of the best performing blue-chip stocks on the ASX. Rising an incredible 117%, not including dividends, compared to a 32% return from the broader S&P/ASX 200 (INDEXASX: XJO).
The question on everyone's mind is: Can the good times continue?
Currently, its shares are trading on a 4.8% dividend yield and lower price-book ratio than Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC).
Macquarie, being an investment bank with global exposure, has many areas from which it'll seek growth in coming years. Funds Management, the bank's most profitable division, has been posting stellar returns on the back of increased investment activity in global equity markets.
Despite management having forecast broadly flat earnings growth from the division in FY15, as markets climb higher and investor confidence increases, so too will its margins and funds under management (FUM). However, potential investors should note this trend works both ways and when markets suffer a correction, FUM will likely fall.
One area management has identified as a key growth area in FY15 is Banking and Financial Services, or BFS. BFS was today identified by the Australian Financial Review as a frontrunner in acting over the sale of ING Direct's $1.5 billion mortgage book.
Macquarie, which derived 68% of its income outside Australia and New Zealand in FY14, has experienced sluggish growth from its Australian operations in recent years.
Management will be hoping the mortgage market can reinvigorate the bank's domestic operations. One of its strategies has been to take significant share holdings in up-and-coming brokerage firms such as Homeloans Limited (ASX: HOM) and Yellow Brick Road Holdings Ltd (ASX: YBR).
Buy, Hold or Sell?
Funds management and BFS are just two of Macquarie Group's growing business divisions but it's important to understand the bank will benefit from other capital markets and corporate activity such as M&A, specialised credit and commodity research. These all point to a brighter future for Macquarie shareholders, over time.
However investors considering buying the stock at today's prices must remember that investment banking is cyclical and right now, the middle of a bull market, may not be the most suitable time to purchase the stock. It's one reason why I'm waiting on the sidelines, until I get a more compelling buying opportunity.