Shares of brokerage firm Charles Schwab (SCHW 4.99%) are down Thursday following this morning’s release of its first-quarter numbers. Although sales and net income were both well up year over year thanks to an increase in total trading activity, a couple of key fiscal measures missed estimates. Investors chose to see the proverbial glass as half-empty rather than half-full.
Some — or even all — of today’s sell-off, however, may be quietly attributable to something other than the company’s Q1 earnings.
A mostly good quarter tainted by two disappointing numbers
Charles Schwab turned record-breaking revenue of nearly $6.5 billion into a per-share profit of $1.43 during the three months ending in March, up 16% and 38% from year-ago comparisons of $5.6 billion and $1.04 (respectively), boosted largely by a 34% year over year increase in total trading volume. The company also added $140 billion in net new assets, pushing its total asset base up 19% to almost $11.8 trillion.
Image source: Getty Images.
There were some disappointing aspects of last quarter’s results though. Chief among them is arguably the revenue miss; analysts were modeling a slightly bigger top line. Net interest income also fell slightly from fourth-quarter levels, to $3.14 billion, missing forecasts of $3.18 billion due to lower interest rates in the first quarter of this year.
Focused on those two shortcomings, as of 11:36 a.m. ET Thursday SCHW stock is nearly 5% below Wednesday’s closing price.
Not actually an indictment of the company’s potential
The knee-jerk response makes enough superficial sense. But, most of Schwab’s first-quarter numbers were undeniably solid, and the ones that weren’t — net interest income, mainly — were understandably disappointing. And it’s not as if the stock was priced for perfection headed into today’s report. This ticker hadn’t made any meaningful net forward progress since August of last year, suggesting investors knew some sort of performance headwind was blowing.
Today’s Change
(-4.99%) $-5.00
Current Price
$95.27
Key Data Points
Market Cap
$176B
Day’s Range
$94.44 – $98.75
52wk Range
$73.76 – $107.50
Volume
8.6M
Avg Vol
11M
Gross Margin
83.42%
Dividend Yield
1.13%
Today’s sizable setback, therefore, may actually have more to do with marketwide weakness than this company’s Q1 results. They just seemed more alarming against the broader bearish backdrop.
Whatever the reason for the stock’s dip, despite a couple of key first-quarter fiscal metrics falling short of expectations, the brokerage firm is doing quite well, while Schwab stock is priced very reasonably at only 16 times this year’s expected per-share earnings of nearly $6.00.
In other words, if you were interested in buying it before today, this is an even-better entry opportunity.
Charles Schwab is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab and recommends the following options: short June 2026 $97.50 calls on Charles Schwab. The Motley Fool has a disclosure policy.
