We've been asking ourselves recently if the market has placed a fair valuation on LPL Financial. Let's dive into some of the fundamental values of this large-cap Finance company to determine if there might be an opportunity here for value-minded investors.
LPL Financial's Valuation Is in Line With Its Sector Averages:
LPL Financial Holdings Inc., together with its subsidiaries, provides an integrated platform of brokerage and investment advisory services to independent financial advisors and financial advisors at enterprises in the United States. The company belongs to the Finance sector, which has an average price to earnings (P/E) ratio of 14.34 and an average price to book (P/B) ratio of 1.57. In contrast, LPL Financial has a trailing 12 month P/E ratio of 15.9 and a P/B ratio of 8.43.
When we divideLPL Financial's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.76, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
Low Debt Levels and Exceptional EPS Growth:
| 2018-02-27 | 2019-02-26 | 2020-02-21 | 2021-02-23 | 2022-02-22 | 2023-02-23 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $4,281 | $5,188 | $5,625 | $5,872 | $7,721 | $8,601 |
| Interest Income (MM) | -$107 | -$125 | -$130 | -$106 | -$104 | -$126 |
| Operating Margins | 14% | 16% | 18% | 14% | 11% | 16% |
| Net Margins | 6.0% | 8.0% | 10.0% | 8.0% | 6.0% | 10.0% |
| Net Income (MM) | $239 | $439 | $560 | $473 | $460 | $846 |
| Depreciation & Amort. (MM) | -$122 | -$148 | -$161 | -$177 | -$231 | -$287 |
| Earnings Per Share | $2.59 | $4.85 | $6.62 | $5.86 | $5.74 | $10.35 |
| EPS Growth | n/a | 87.26% | 36.49% | -11.48% | -2.05% | 80.31% |
| Diluted Shares (MM) | 92 | 91 | 85 | 81 | 80 | 82 |
| Free Cash Flow (MM) | $565 | $714 | $780 | $945 | $669 | $2,252 |
| Capital Expenditures (MM) | -$112 | -$133 | -$156 | -$156 | -$216 | -$307 |
| Net Current Assets (MM) | -$1,750 | -$1,772 | -$1,986 | -$1,957 | -$2,022 | -$1,759 |
| Long Term Debt (MM) | $2,493 | $2,476 | $2,399 | $2,345 | $2,814 | $2,717 |
LPL Financial has strong margins with a stable trend, exceptional EPS growth, and low debt levels. Furthermore, LPL Financial has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and just enough current assets to cover current liabilities.
