What Should You Know About LPL Financial (LPLA)?

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.

Trades Below Its Graham Number but Has an Elevated P/B Ratio:

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 12.38 and an average price to book (P/B) ratio of 1.58. In contrast, LPL Financial has a trailing 12 month P/E ratio of 18.9 and a P/B ratio of 9.29.

When we divideLPL Financial's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.9, 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.

Strong Revenue Growth With Increasing Reinvestment in the Business:

2018 2019 2020 2021 2022 2023
Revenue (MM) $5,188 $5,625 $5,872 $7,721 $8,601 $9,742
Revenue Growth n/a 8.41% 4.39% 31.49% 11.4% 13.27%
Interest Income (MM) $40 $47 $29 $104 $126 $169
Operating Margins 11% 13% 11% 8% 13% 16%
Net Margins 8% 10% 8% 6% 10% 12%
Net Income (MM) $439 $560 $473 $460 $846 $1,168
Depreciation & Amort. (MM) $88 $96 $110 $151 $200 $200
Earnings Per Share $4.85 $6.62 $5.86 $5.63 $10.4 $14.73
EPS Growth n/a 36.49% -11.48% -3.92% 84.72% 41.63%
Diluted Shares (MM) 91 85 81 82 81 77
Free Cash Flow (MM) $449 $467 $634 $237 $1,639 -$178
Capital Expenditures (MM) $133 $156 $156 $216 $307 $372
Total Debt (MM) $2,372 $2,399 $2,345 $2,814 $2,717 $3,124
Net Debt / EBITDA 2.74 2.16 2.09 3.08 1.43 1.31

LPL Financial has rapidly growing revenues and increasing reinvestment in the business and strong operating margins with a positive growth rate. Additionally, the company's financial statements display exceptional EPS growth and low leverage levels. However, the firm has positive cash flows.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.