Wednesday, May 31, 2023

Why the value of this activity can grow by 84%

Charles Schwab shares are currently trading at $52 per share, about 46% below (84% up) from the $96 level on January 15, 2022 (pre-inflationary impact), and looks like a good investment opportunity. Charles Schwab saw its shares trading around $63 at the end of June 2022, before the Federal Reserve began raising rates, and is still 18% below that level.

In comparison, the S&P 500 has gained about 11% during this period. Stock prices have suffered in recent months due to fears of a banking crisis following the failure of Silicon Valley Bank. However, this has declined in the inflation rate in response to the aggressive rate-hike policy of the Federal Reserve and the steady growth of Charles Schwab.

A return to the pre-inflation level means that SCHW shares will have to gain more than 84% from here. However, we do not think that will be the case anytime soon, and we estimate that Charles Schwab’s valuation is around US$66 per share. The recent uncertainty in the financial sector has caused investors to worry about a possible recession.

Charles schwab

Our detailed analysis of Charles Schwab’s post-inflationary impact portfolio captures trends in the company’s stock through turbulent market conditions through 2022 and compares these trends to stock performance during the 2008 recession.

Inflation rate in 2022

Timeline of inflationary shock only:

  • 2020 – Early 2021: Increased money supply to cushion the impact of the lockdown led to high demand for goods; the manufacturer agrees.

  • Early 2021 : Worker shortages continue to affect supply due to the coronavirus pandemic.

  • April 2021 : Inflation rates pass 4% and are rising rapidly.

  • Meltdown 2022: Energy and fuel prices rise due to Russian invasion of Ukraine. H starts the walk rate process.

  • June 2022 – Inflation levels peak at 9%, the highest level in 40 years. The S&P 500 index is down more than 20% from its peak.

  • July – September 2022: H aggressive interest rates, resulting in an initial rally in the S&P 500 followed by another sharp decline.

  • From October 2022: H walking rate continues; The improved sentiment is helping the S&P500 market recover some of its losses.

  • Continue reading the story

    In contrast, this is how SCHW shares and the wider market performed during the 2007/2008 crisis.

    Timeline of the 2007-08 crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 Index

  • 09/01/2008 – 10/01/2008: Accelerated market crash in response to Lehman bankruptcy declaration (09/15/08)

  • 03/01/2009: approximation of the Bottoming of the S&P 500 Index

  • 12/31/2009: initial recovery to levels before accelerated decline (circa 9/1/2008)

  • SCHW and S&P 500 performance during the 2007-08 crisis

    SCHW shares fell from nearly $22 in September 2007 (pre-crisis high) to less than $13 in March 2009 (while the market was bearish), as if SCHW shares had lost nearly 43% of their pre-crisis value. It recovered after the 2008 crisis to levels around US$19 in early 2010, rising 48% between March 2009 and January 2010.

    The S&P 500 index felt a drop of 51% falling from 1,540 levels in September 2007 to 757 in March 2009. Then it gathered 48% between March 2009 and January 2010 to 1,124 levels.

    Foundations of SCHW over the years

    SCHW’s revenue increased 9% from $10.7 billion in 2019 to $11.7 billion in 2020 due to higher business volumes. Additionally, revenue increased 58% in 2021, driven in part by organic growth and in part by the acquisition of TD Ameritrade. The trend continued in 2022, with a top line rise of 12% for the year.

    Similarly, earnings increased from $2.69 in 2019 to $3.52 in 2022 driven by increased revenue. However, SCHW reported earnings per share of $2.13 in 2020, a year-over-year decline, as its pandemic spending.


    With H’s efforts to control inflation rates helping to boost market sentiment, we believe Charles Schwab stock has the potential for strong gains (up 84%) once recession fears subside.

    Schw performance compared with three multi-strategy portfolios

    The performance of SCHW’s multi-layer portfolio was compared with Trefis.

    * With data from Forbes US.

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