Is Charles Schwab (SCHW) Still Reasonable After Record Revenue?
After a 58.8% gain over the past five years, Charles Schwab stock is no longer an obvious bargain at first glance. However, the intrinsic value estimate from the Excess Returns model still points to meaningful upside relative to the current US$100.8 share price. That sets up a clear tension for investors weighing the recent performance against what the valuation checks are implying today.
- Over five years, Charles Schwab has returned 58.8%. This means anyone looking at the stock now is assessing it after a strong multi year run rather than at the start of a move.
- Recent headlines around record revenue, growing client assets and new crypto trading products can support higher long term cash flow expectations. At the same time, the build out of digital assets capabilities introduces execution and regulatory risks that may affect how much investors are willing to pay.
- On Simply Wall St's valuation framework, Charles Schwab screens as undervalued in 6 of 6 checks, suggesting the broader set of metrics still leans cheap despite the share price recovery.
The issue now is whether that apparent discount to intrinsic value offers enough margin of safety after such a solid five year return profile.
Is Charles Schwab a Bargain on Excess Returns?
The Excess Returns model for Charles Schwab looks at how efficiently the company turns its equity base into earnings above its estimated cost of capital. On this view, Schwab’s average return on equity of 23.63% sits well above the implied cost of equity of $2.70 per share, generating an excess return of $5.04 per share on a stable earnings base of $7.74. Those earnings are supported by a book value of $28.88 per share and a projected stable book value of $32.75 per share. Together, these figures underpin the long run cash generation the model is intended to capture.
When those excess returns are projected forward, the Excess Returns model arrives at an intrinsic value of $140.15 per share, compared with the current $100.80 share price. On this framework, the stock appears 28.1% undervalued. Because Schwab’s recent record $7.1b revenue quarter and expanding crypto offering are already well publicised, the fact that the share price still sits below the model’s estimate indicates that investors remain cautious about how durable those economics will be.
On the Excess Returns model, Charles Schwab stock currently screens as undervalued relative to its estimated intrinsic value.
Our Excess Returns analysis suggests Charles Schwab is undervalued by 28.1%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.
Is Charles Schwab Fairly Priced on Earnings?
P/E is usually the cleanest way to compare a mature broker and asset gatherer like Charles Schwab with its Capital Markets peers because it ties the share price directly to the earnings investors are paying for. Schwab currently trades on a P/E of about 18.0x, which is below the peer average of 30.3x and the wider Capital Markets industry average of 40.3x.
On Simply Wall St’s framework, the fair P/E for Charles Schwab comes out at 19.6x, factoring in its sector, size and risk profile. That leaves the stock trading a little under this tailored fair ratio, but not by a wide margin, so the discount to raw industry and peer multiples looks more moderate once company specifics are considered.
Overall, the P/E comparison suggests Charles Schwab stock is priced roughly in line with what the model views as a fair earnings multiple.
See what the numbers say about this price — find out in our valuation breakdown.
The Charles Schwab Narrative: What Would Justify Today's Price?
Simply Wall St Narratives for Charles Schwab pick up where the valuation checks leave off. They spell out which paths for Charles Schwab's growth, margins and earnings would justify a meaningfully higher or lower price than today. Rather than relying on a single multiple or model result, each narrative lays out the assumptions that sit behind its view of fair value so you can weigh those against the company’s actual results as they are reported. These narratives are available on Simply Wall St's Community page.
Community views on Charles Schwab sit far apart, with one camp seeing quiet compounding potential and the other focused on execution and spending risks.
Bull case: 18% undervalued
"Its model blends brokerage, asset management, advisory services, and banking in a way that creates multiple, overlapping revenue streams..."
Read the full Bull Case to see why Charles Schwab could be undervalued
Bear case: 8% overvalued
"Heavy investment in AI, technology and new platforms such as spot crypto could overshoot sustainable demand..."
Read the full Bear Case to see why Charles Schwab could be overvalued
Do you think there's more to the story for Charles Schwab? Head over to our Community to see what others are saying!
The Bottom Line
For Charles Schwab, the Excess Returns intrinsic value estimate points to the stock trading at a meaningful discount, while the tailored P/E suggests the market is pricing it roughly in line with peers once company specifics are accounted for. Together, that leaves Schwab looking modestly undervalued rather than obviously mispriced. The real hinge from here is whether the company can keep converting its equity base into attractive excess returns without the newer initiatives, such as crypto and technology spending, eroding that discipline. How those execution and regulatory risks play out is likely to decide whether the current discount is an opportunity or a fair reflection of those uncertainties.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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