When it comes to big, blue-chip stocks they don't come much bigger than diversified wealth management firm AMP Limited (ASX: AMP). What's more, with over 850,000 shareholders, thanks to its demutualisation back in 1997, it is also one of the most widely-owned companies in Australia.
Despite its size, AMP hasn't been a particularly fruitful investment – a reminder that size and status doesn't guarantee good investment performance. Over the past decade AMP's share price has actually declined by 17%, in comparison the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is up 41%. Over the more recent past however, things have started looking up for AMP's shareholders with the share price rallying 42% over the last 12 months.
In short, AMP's past performance has left a lot to be desired!
Even the Chairman of AMP Mr Simon McKeon was reported to concede this in the Australian Financial Review recently:
"McKeon admitted the wealth giant's performance had underperformed in the past decade, but argued the company now had the right strategies in place to improve returns – and that they were bearing fruit."
While the past might not have been great, it's important for investors to focus on the future and in that respect there are some reasons to be positive about the potential for AMP to provide adequate returns in the future. Arguably, the biggest positive is the firm's market-leading position in the growing Australian wealth management sector.
Buy, Hold, or Sell?
AMP is due to report its full year results on 19 February. This will offer a timely opportunity for investors to assess how the business units of this industry giant are performing.
According to data provided by Morningstar, AMP is expected to earn 34.8 cents per share for calendar year 2014. Assuming the company meets this forecast the stock is trading on a price-to-earnings ratio of 18.4x. That's above the market multiple, which makes comments by management for earnings growth in 2015 all the more critical to assess and could be at the heart of any decision on whether to allocate a portion of AMP to your portfolio or not.
