Is the AMP share price a buy? Here's my view

Should investors still feel excited about AMP?

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The AMP Ltd (ASX: AMP) share price has soared an incredible 70% over the past year. After such a strong rise, investors may be wondering if the ASX financial share is an opportunity today.

As the chart above shows, 2024 was a great year for the company. But, there are a few things I'd want to consider before calling it an attractive buy because it's not typical for a company like AMP to go up so much in 12 months.

Despite the large valuation rise, it's still lower than where it was five years ago.

Let's explore three things that can help investors decide if it's appealing.

Operating growth

If AMP grows its underlying operations, it has a great chance of boosting its profit and sending the AMP share price upward, in my view.

The ASX financial share's most recent update was for the three months ending September 2024, and it showed several positives.

AMP's platforms net cash flows amounted to $750 million, up 76% year over year. The North inflows from independent financial advisers (IFAs) increased 47% year over year to $832 million.

The company advised that in the third quarter of 2024, its 'platforms' assets under management (AUM) increased to $78.1 billion, up 4.5% from the second quarter of 2024.

The superannuation and investments division saw AUM increase 3.3% in the quarter compared to the second quarter of 2024, with net cash outflows reducing 46% to $334 million.

Turning to New Zealand wealth management, net cash flows were $40 million, up $34 million year over year. AUM increased to $11.6 billion, up from $11.2 billion in the second quarter of 2024.

The AMP Bank loan book increased by $0.1 billion to $23 billion in the third quarter of 2024, while total deposits increased $0.3 billion over the three months to $20.9 billion.

There's no guarantee the cash flows will continue to improve or even be positive. But things are going in the right direction.

If earnings are growing, then a business can usually command a higher price/earnings (P/E) ratio.

Dividend payments

One of the advantages of an ASX financial share for dividends is that they can often provide a good dividend yield with a relatively low valuation compared to other sectors.

Broker UBS predicts that AMP share owners could receive an annual dividend per share of 7 cents in FY25. At the current AMP share price, that translates into a forward dividend yield of 4.3% for 2025.

Valuation

Although the company's earnings are lower than they were a few years ago, the broker UBS projects that net profit could rise each financial year to FY28.

For FY24, UBS predicted AMP's net profit could rise to $222 million. At the current AMP share price, it's valued at 20x FY24's estimated earnings.

According to UBS, ASX financial share's net profit could rise to $278 million in FY25, $288 million in FY26, $292 million in FY27 and $301 million in FY28. This means the AMP share price is valued at less than 15x FY25's estimated earnings.

That valuation doesn't seem too bad, but profit is expected to grow very slowly in the next few years. I don't think this is a great business to buy at the current level. There are other companies that could grow earnings a lot more in the next four or five years that I'd rather invest in.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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