HMC Capital Ltd (ASX: HMC) has been through the wringer. Its shares are down more than 50% in 2025 alone, and over 60% from their 12-month high.

That's a brutal correction for a business that, not long ago, was being talked about as a rising star in alternative asset management.

So, is this just a rough patch and ultimately, a buying opportunity? Or are HMC Capital shares the classic value trap that investors should avoid?

Let's dig in.

How did we get here?

Let's start with what makes HMC an appealing investment. The company is led by David Di Pilla, a former UBS investment banker who transformed a portfolio of real estate assets previously owned by Masters, the failed Woolworths Group Ltd (ASX: WOW) project, to take on Bunnings.

Di Pilla's genius was in transforming this portfolio into a diversified alternative asset manager with funds targeting different strategies from real estate to private equity, private credit, and energy transition.

What makes it particularly appealing is that HMC Capital's funds are focused on investing in four mega-trends: the ageing population, decarbonisation, digitisation, and deglobalisation. And as funds under management increase, HMC Capital earns more through management fees, with the potential for performance fees as well.

That was all going well, but lately investor sentiment has turned sharply for a range of reasons.

For example, HMC Capital's HealthCo Healthcare & Wellness REIT (ASX: HCW) is the landlord for 11 properties tenanted by Healthscope, the private hospital group that has been in financial distress and delaying rental payments. Healthscope rent accounts for over 50% of rental income in the HCW REIT, so that was a big blow for the HCW REIT.

In response, HCW REIT paused its distributions and withdrew its earnings guidance. HCW has now reached an agreement with Healthscope to partially defer rent due to it, but the situation remains somewhat uncertain.

At the same time, many of HMC Capital's fund holdings — including stakes in the HomeCo Daily Needs REIT (ASX: HDN), HCW, and the DigiCo Infrastructure REIT (ASX: DGT) — now trade at 15% to 50% discounts to net tangible assets (NTA), dragging down the value of HMC's balance sheet.

Are HMC Capital shares now undervalued?

At the time of writing, the HMC Capital share price is $4.82, but the million-dollar question is how much these shares are worth.

Morgan Stanley ran a couple of base-case valuation exercises to estimate a floor for HMC Capital shares. Using sum-of-the-parts math and recurring earnings multiples, they settled on a valuation of $4.20–$4.60 per share as a base and $6.30 as their price target over the next 12 months.

JP Morgan is even more bullish, with a $10.25 share price target and backing the group to deliver strong growth of assets under management (AUM) and earnings per share over the next few years despite near-term noise. HMC Capital has approximately $18.5 billion in AUM and is targeting an increase to $50 billion in the next 3-5 years.

And Jefferies has a $7.62 price target, citing HMC's capital-light model, rapid AUM growth, and exposure to macro megatrends like decarbonisation and digital infrastructure.

So while sentiment is fragile, valuation support is starting to build, particularly if you believe in the long-term strategy.

I think HMC Capital shares are getting to a point where investors should start to take notice. The company is currently raising an energy transition fund with a targeted initial $2 billion of committed capital. A successful capital raise could remind the market of HMC's fundraising firepower and refocus attention on its bold $50 billion AUM target.

But this is still a complex business. The group structure is hard to dissect, disclosures remain patchy, and unforeseen vulnerabilities (like Healthscope) will likely keep emerging. That doesn't make HMC uninvestable, but it does mean investors need to be selective, patient, and realistic about the risks.