Over the past six months, Charles Schwab’s shares (currently trading at $89.40) have posted a disappointing 6.5% loss, well below the S&P 500’s 7.7% gain. This might have investors contemplating their next move.
Given the weaker price action, is now a good time to buy SCHW? Find out in our full research report, it’s free.
Why Is Charles Schwab a Good Business?
Founded in 1971 as a disruptive force challenging Wall Street's high fees and limited access, Charles Schwab (NYSE: SCHW) is a wealth management and brokerage firm that provides investment services, banking, and financial advice to individual investors and independent advisors.
1. Long-Term Revenue Growth Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.
Luckily, Charles Schwab’s revenue grew at a solid 12.5% compounded annual growth rate over the last five years. Its growth surpassed the average financials company and shows its offerings resonate with customers.
2. EPS Increasing Steadily
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Charles Schwab’s EPS grew at 14.9% compounded annual growth rate over the last five years, higher than its 12.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Market-Beating ROE Showcases Attractive Growth Opportunities
Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.
Over the last five years, Charles Schwab has averaged an ROE of 14.9%, healthy for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This shows Charles Schwab has a decent competitive moat.
Final Judgment
These are just a few reasons why we think Charles Schwab is a high-quality business. With the recent decline, the stock trades at 14.7× forward P/E (or $89.40 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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