As of July 18, 2023, the stock of Charles Schwab Corp (SCHW, Financial) is trading at $66.01, a significant 12.57% change for the day. With a market cap of $120.1 billion and sales of $21.2 billion, the company's financial metrics show a promising picture. The GF Value, a unique measure of intrinsic value, is pegged at $80.62, suggesting that Charles Schwab (SCHW) is modestly undervalued.
Charles Schwab operates in the brokerage, wealth management, banking, and asset-management sectors. It boasts an extensive network of physical brokerage branch offices, a robust online investing website, and mobile trading capabilities. As of December 2022, the company managed over $7 trillion of client assets, making it one of the largest firms in the investment business. The company's operations are primarily based in the United States.
Charles Schwab (SCHW, Financial): A Modestly Undervalued Stock?
The GF Value of Charles Schwab (SCHW) is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it may be overvalued, potentially leading to poor future returns. Conversely, if the price is significantly below the GF Value Line, the stock may be undervalued, indicating high future returns. Currently, Charles Schwab's stock appears to be modestly undervalued, suggesting that the long-term return of its stock is likely to be higher than its business growth.
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Evaluating Charles Schwab's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss for investors. To avoid this, it's crucial to evaluate a company's financial strength before purchasing shares. Key factors to consider include the cash-to-debt ratio and interest coverage. Charles Schwab's cash-to-debt ratio of 0.68 ranks lower than 71.32% of companies in the Capital Markets industry, indicating poor financial strength.
Profitability Analysis of Charles Schwab
Consistent profitability over the long term often indicates reduced risk for investors. Charles Schwab has been profitable 10 times over the past decade. In the last twelve months, the company recorded $21.2 billion in revenue and an EPS of $3.66. However, its operating margin of 0% ranks lower than most companies in the Capital Markets industry, indicating fair profitability.
Growth Potential of Charles Schwab
Growth is a critical factor in company valuation. Charles Schwab's 3-year average annual revenue growth of 10.5% ranks better than 56.6% of companies in the Capital Markets industry. However, its 3-year average EBITDA growth rate is 0%, which is lower than most companies in the industry.
Comparing ROIC and WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) can provide insights into its profitability. If the ROIC is higher than the WACC, the company is creating value for shareholders. Over the past 12 months, Charles Schwab's ROIC was 0, while its WACC was 7.29.
Conclusion
In summary, Charles Schwab Corp (SCHW, Financial) appears to be modestly undervalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks lower than most companies in the Capital Markets industry. To learn more about Charles Schwab stock, you can check out its 30-Year Financials here.
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