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Understanding Charles Schwab’s Valuation

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May. 15 2018, Updated 10:32 a.m. ET

Higher valuation

Charles Schwab (SCHW) has an NTM (next-12-month) price-to-book ratio of 3.8x, higher than competitors’ average ratio of 1.5x. Peers Morgan Stanley (MS), Goldman Sachs (GS), and Raymond James Financial (RJF) have NTM price-to-book ratios of 1.3x, 1.2x, and 2.0x, respectively.

Charles Schwab’s 1Q18 results were largely helped by lower tax and market volatility supporting trading. Brokerages (XLF) benefit from higher interest rates.

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What could drive Charles Schwab?

Charles Schwab’s future growth prospects primarily rely on global factors directly or indirectly affecting stock markets. Increased volatility could continue to benefit the company as it did in 1Q18, when trade war tensions and interest rate hike expectations created volatile equity markets.

Charles Schwab’s future performance could also depend on competition. The company needs to make pricing changes to attract market participants while protecting its financial position. Charles Schwab’s LTM (last-12-month) price-to-book ratio is 4.3x, while peers Morgan Stanley, Goldman Sachs, and Raymond James Financial have LTM price-to-book ratios of 1.2x, 1.1x, and 2.4x, respectively.

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