The Charles Schwab Corporation (SCHW) is a large American financial services company with a relatively unique business model.
Schwab is a discount broker, which provides a platform that allows people to invest in stocks, ETFs, and other assets.
Its business model allows it to offer brokerage services without taking any commission. In 2020, it completed the acquisition of TD Ameritrade, another brokerage, a move that gave it a bigger scale.
Charles Schwab also operates a bank. Unlike other banks that lend money to people and businesses, it mostly invests these funds in government bonds.
This model has worked well over the years but came under strain when the Federal Reserve started to hike interest rates. These cuts led to higher unrealized losses for its longer-term dated government bonds, the same issue that led to the collapse of Silicon Valley Bank (SVB) in 2023.
Charles Schwab’s annual revenue has grown in the past few years, helped by its TD acquisition. Its revenue rose from $10.7 billion in 2019 to over $20 billion in 2022. The revenue then retreated to $18.8 billion in 2023 as its business went through a slowdown.
Charles Schwab’s stock was trading at $71.56 on Wednesday, while its HypeIndex metric rose to 149%.
Positive hype
Charles Schwab’s hype has risen because of the stock’s performance as it jumped by over 61% from its lowest point in 2023.
The company has also survived the higher interest rates environment since some analysts were expecting it to have a bank run as the mini-banking crisis continued.
Charles Schwab published results that were significantly better than Wall Street estimates.
It increased its assets by $95 billion, bringing the year-to-date assets additions to over $252 billion, a 10% increase from the same period last year.
Charles Schwab’s wealth management division also continued doing well as its inflows rose to $40 billion.
Its quarterly revenue rose to $4.8 billion from $4.6 billion in the same quarter last year. Its nine-month revenue rose to $14.27 billion.
The company has a diversified business model, which helps strong divisions to offset those that are not doing too well.
Analysts are upbeat about its growth as interest rates start falling. Its current quarter revenue is expected to grow by 12.60% to $5.02 billion, while its annual revenue will rise by 2.2% to over $19.25 billion.
The stock has some more upside since it has soared above the 50-day and 200-day Exponential Moving Averages (EMA).
Its trading division will likely see more activity as interest rates start falling.
Negative hype
The company is relatively overvalued compared to other American banks. Its trailing PE ratio is 24, higher than other banks like Goldman Sachs, Morgan Stanley, and Raymond James.
The company also has a higher price-to-book ratio of 3.80, which is expensive since Goldman Sachs has a multiple of 1.40 and Morgan Stanley has 1.98.
Some investors are concerned about its risk management approach because of its substantial unrealized losses. It has over $19.6 billion in these losses and is continuing to reduce the size of its banking division.
It could come under more regulations to prevent these unrealized losses in the future.
The company is facing more competition from companies like Robinhood, Webull, and Moomoo.
Summary of Charles Schwab stock
The Charles Schwab Corporation is one of the leading companies in the financial services industry. It has over 35.5 million brokerage clients and over 5.3 million workplace plan participants. Its banking division has 1.8 million accounts.
Its business is still growing, as evidenced by the substantial amount of assets it has brought in from retail and institutional clients.
The stock, as shown above, has moved above the 50-day and 100-day moving averages, and is nearing the highest point on May 22 at $79. It will likely continue doing well in the longer term since it has survived the high interest rate environment.
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