The $19 billion Macquarie Group Ltd (ASX: MQG) which has been dubbed the 'millionaires factory' thanks to its lavish compensation packages for employees is back in the limelight after unveiling a full-year net profit of $1.265 billion. The profit result was up 49% on the prior year. Meanwhile based on earnings per share (EPS) of $3.84, the result was up 53% on the prior year.
Macquarie also paid out $2.60 per share in ordinary dividends for the 2014 financial year which equates to a historic dividend yield of 4.3%.
Understandably, investors liked what they saw with the share price gaining nearly 5% since the results were released to hit a new 52-week high. Shareholders over the past year have now enjoyed a gain of 32.5% which is an outstanding return when compared against both the 3.4% return from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) and against the best performing of the banking majors – Commonwealth Bank of Australia (ASX: CBA) and its 11.6% return.
During the results release management stated they expect that profits in financial year (FY) 2015 should be up on FY 2014, enough to broadly offset the realised gain relating to the distribution of Sydney Airport Holdings Ltd (ASX: SYD).
While management's statement implies underlying profit growth, it didn't exactly quantify the expected growth, leaving investors to now contemplate what growth to expect from Macquarie over the coming year and whether this is already reflected in the $60.55 share price.
Based on the FY 2014 EPS result, Macquarie is trading on a price-to-earnings (PE) ratio of 15.8. With a lack of domestic investment banking peers to compare with, some investors choose to look at foreign-based competitors such as Goldman Sachs Group Inc (NYSE: GS) for comparison. Annualising Goldman's March quarter earnings suggests the global leader is trading on a PE ratio of just 9.6.
On this comparison at least, Macquarie's stock looks to be well and truly fully priced.
Foolish takeaway
Of course the multiple ascribed to a stock should amongst other things reflect a company's future growth potential. Arguably the growth outlook for the smaller and more nimble Macquarie is very good and hence it deserves a high multiple.
The fortunes of investment banks are closely aligned with equity and capital markets, if these markets continue to improve then there is a good chance Macquarie will continue to grow its earnings and dividends in the coming year. This would certainly act as a tailwind to send the stock price even higher.