T. Rowe Price (TROW)

Investment management firm T. Rowe Price (NASDAQ:TROW) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 6% year on year to $1.89 billion. Its non-GAAP profit of $2.81 per share was 10.5% above analysts’ consensus estimates.

Company Overview

Founded in 1937 by Thomas Rowe Price Jr., who pioneered the growth stock investing approach, T. Rowe Price (NASDAQ:TROW) is an investment management firm that offers mutual funds, advisory services, and retirement planning solutions to individuals and institutions.

Custody banks safeguard financial assets and provide services like settlement, accounting, and regulatory compliance for institutional investors. Growth opportunities stem from increasing global assets under custody, demand for data analytics, and blockchain technology adoption for settlement efficiency. Challenges include fee pressure from large clients, substantial technology investment requirements, and competition from both traditional players and fintech firms entering the space.

T. Rowe Price competes with other major asset managers including BlackRock (NYSE:BLK), Vanguard Group, Fidelity Investments, Franklin Templeton (NYSE:BEN), and Invesco (NYSE:IVZ) in the increasingly competitive investment management industry.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, T. Rowe Price grew its revenue at a sluggish 3.9% compounded annual growth rate. This was below our standard for the financials sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. T. Rowe Price’s annualized revenue growth of 6.6% over the last two years is above its five-year trend, but we were still disappointed by the results. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, T. Rowe Price reported year-on-year revenue growth of 6%, and its $1.89 billion of revenue exceeded Wall Street’s estimates by 1.4%.

Assets Under Management (AUM) represents the total value of investments that a financial institution manages for its clients. These assets generate steady income through management fees, creating predictable revenue streams that remain stable so long as clients remain invested with the firm.

T. Rowe Price’s AUM has grown at an annual rate of 1.6% over the last four years, much worse than the broader financials industry. When analyzing T. Rowe Price’s AUM over the last two years, we can see that growth accelerated to 11.1% annually. Fundraising or short-term investment performance were net contributors for the company over this shorter period since assets grew faster than total revenue. Just remember that while assets are relevant to watch, we don't place too much emphasis on them because they ebb and flow with the market.

T. Rowe Price’s AUM punched in at $1.77 trillion this quarter, beating analysts’ expectations by 1.6%. This print was 8.5% higher than the same quarter last year.

Financial firms generate fee-based revenue through activities like M&A advisory, capital raising, and dedicated client servicing programs.

Over the past five years, T. Rowe Price’s fees grew by a weak 3.8% per year and tracked the change in its total revenue. A two-year view reveals a more encouraging story as growth picked up to 7.6% annualized.

This quarter, T. Rowe Price’s fees were $1.70 billion, missing Consensus estimates by 0.6%. Wall Street opinions aside, fees grew by 4.4% year on year.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Custody Bank companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

Financials companies manage interest-bearing assets and liabilities, making the interest income and expenses included in pre-tax profit essential to their profit calculation. Taxes, being external factors beyond management control, are appropriately excluded from this alternative margin measure.

Over the last four years, T. Rowe Price’s pre-tax profit margin has risen by 17.5 percentage points, going from 56.8% to 39.4%. Luckily, it seems the company has recently taken steps to address its expense base as its pre-tax profit margin expanded by 4.2 percentage points on a two-year basis.

T. Rowe Price’s pre-tax profit margin came in at 46.6% this quarter. This result was in line with the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

T. Rowe Price’s EPS grew at a weak 1.5% compounded annual growth rate over the last five years, lower than its 3.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to factors such as interest expenses and taxes.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For T. Rowe Price, its two-year annual EPS growth of 11.1% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.

In Q3, T. Rowe Price reported adjusted EPS of $2.81, up from $2.57 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects T. Rowe Price’s full-year EPS of $9.40 to grow 9.7%.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, T. Rowe Price has averaged an ROE of 22.2%, exceptional for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This is a bright spot for T. Rowe Price.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

T. Rowe Price has no debt, so leverage is not an issue here.

It was good to see T. Rowe Price beat analysts’ EPS expectations this quarter. We were also happy its AUM outperformed Wall Street’s estimates. On the other hand, its advisory and servicing fees slightly missed. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 2.2% to $104.39 immediately following the results.

Updated: December 3, 2025 at 11:24 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in T. Rowe Price.

T. Rowe Price’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was uninspiring over the last five years. And while its stellar ROE suggests it has been a well-run company historically, the downside is its declining pre-tax profit margin shows the business has become less efficient. On top of that, its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

T. Rowe Price’s P/E ratio based on the next 12 months is 10x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $110.25 on the company (compared to the current share price of $104.19).