Leading financial services company, The Charles Schwab Corporation (SCHW) in Westlake, Tex., recently unveiled a new direct indexing solution, Schwab Personalized Indexing™, which brings powerful tax management and portfolio management capabilities to a wider spectrum of registered investment advisors and retail investors. The solution is expected to be available to the public by the end of April. In addition, SCHW has filed for a crypto economy ETF with the Securities and Exchange Commission (SEC) that, if approved, will enable Charles Schwab’s clients to speculate on the index without holding any assets. SCHW is seeking opportunities in digital currencies, but it would not directly track the cryptocurrencies like traditional ETFs. It aims to track the Schwab Crypto Economy Index, which comprises companies engaged in some of the other areas of crypto-related activities.

However, the firm’s activities have been compromised by the recent market downturns that have “weighed on client asset levels and margin balances.” SCHW’s total client assets stood at $7.69 trillion as of the close of February, up 11% from February 2021 but down 2% versus January 2022. Its clients’ average margin balances were $84.4 billion in February, down 3% from the prior month. Its new brokerage accounts opened in February declined 16% compared to January 2022 and down 71% from the prior-year month, while its core net new assets in February increased 21% from the previous month but decreased 21% year-over-year.

Shares of SCHW have gained 20.2% in price over the past year and 6.8% over the past six months. However, the stock has slumped 10.9% over the past three months to close yesterday’s trading session at $80.87.

Here is what could shape SCHW’s performance in the near term:

Lower-Than-Expected Financials

For its fiscal fourth quarter, ended December 31, SCHW’s net revenues increased 12.7% year-over-year to $4.71 billion, $79.07 million short of the consensus estimate. Its adjusted net income grew 21.7% from its year-ago value to $1.78 billion, while its adjusted EPS increased 16.2% year-over-year to $0.86, missing the consensus estimate by 2.3%.

Lofty Valuation

In terms of forward P/E, SCHW is currently trading at 23.51x, which is 109.8% higher than the 11.29x industry average. Also, its 7.51 forward Price/ Sales ratio is 141.8% higher than the 3.11 industry average. SCHW’s 2.77x and 25.50x respective forward Price/Book and Price/Cash Flow are 148.6% and 161.2% higher than the industry averages.

Mixed Profitability

SCHW’s 96.83% and 31.61% respective gross profit and net income margins are 50.7% and 3.6% higher than the 64.24% and 30.51% industry averages.

However, its 11.33% ROE is 11.4% lower than the 12.78% industry average, while its 0.88% ROA is 34.6% lower than the 1.34% industry average.

POWR Ratings Reflect Uncertainty

SCHW has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Stability, which is consistent with its beta of 1.

SCHW also has a C grade for Quality, which is in sync with its mixed profitability.

Among the 22 stocks in the Investment Brokerage industry, SCHW is ranked #19.

Beyond what I have stated above, one can also view SCHW’s grades for Value, Growth, Momentum, and Sentiment here.

View the top-rated stocks in the Investment Brokerage industry here.

Bottom Line

The company has positioned itself as a leading brokerage player, and its newly added offerings should only strengthen its position in the industry. However, the turbulent macroeconomic environment is weighing on the company. Also, considering its lofty valuation, I think it could be best to wait for a better entry point in the stock.

How Does the Charles Schwab Corporation (SCHW) Stack Up Against its Peers?

While SCHW has an overall POWR Rating of C, one  might want to consider taking a look at its industry peers, Manning & Napier, Inc. (MN), which has an A (Strong Buy) rating, and Piper Sandler Companies (PIPR) and Greenhill & Co., Inc. (GHL), which have a B(Buy) rating.

SCHW shares rose $0.32 (+0.40%) in premarket trading Thursday. Year-to-date, SCHW has declined -3.64%, versus a -5.70% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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