E*TRADE Financial Corporation (NASDAQ:ETFC) and The Charles Schwab Corporation (NASDAQ:SCHW) are both Financial companies that recently hit new highs. This price action has ruffled more than a few feathers in the investment community, but is one a better investment than the other? To answer this, we will compare the two companies across growth, profitability, risk, return, dividends, and valuation measures.
E*TRADE Financial Corporation (NASDAQ:ETFC) operates in the Investment Brokerage – National segment of the Financial sector. The company has grown sales at a -3.00% annual rate over the past five years, putting it in the low growth category. ETFC has a net profit margin of 25.20% and is more profitable than the average company in the Investment Brokerage – National industry. In terms of efficiency, ETFC has an asset turnover ratio of 0.04. This figure represents the amount of revenue a company generates per dollar of assets. ETFC’s financial leverage ratio is 6.62, which indicates that the company’s asset base is primarily funded by debt. Company’s return on equity, which is really just the product of the company’s profit margin, asset turnover, and financial leverage ratios, is 9.60%, which is better than the Investment Brokerage – National industry average ROE.
Stock’s free cash flow yield, which represents the amount of cash available to investors before dividends, expressed as a percentage of the stock price, is 1.88. Company trades at a P/E ratio of 23.45, and is more expensive than the average stock in the Investment Brokerage – National industry. The average investment recommendation for ETFC, taken from a group of Wall Street Analysts, is 2.10, or a buy.
Over the past three months, E*TRADE Financial Corporation insiders have been net buyers, dumping a net of -92,975 shares. This implies that insiders have been feeling relatively bearish about the outlook for ETFC. Insider activity and sentiment signals are important to monitor because they can shed light on how “risky” a stock is perceived to be at it’s current valuation. Knowing this, it makes sense to look at beta, a measure of market risk. ETFC has a beta of 1.44 and therefore an above average level of market volatility.
The Charles Schwab Corporation (NYSE:SCHW) operates in the Investment Brokerage – National segment of the Financial sector. SCHW has increased sales at a 9.20% CAGR over the past five years, and is considered a medium growth stock. The company has a net profit margin of 24.50% and is more profitable than the average Investment Brokerage – National player. SCHW’s asset turnover ratio is 0.04 and the company has financial leverage of 11.8. SCHW’s return on equity of 14.60% is better than the Investment Brokerage – National industry average.
The Charles Schwab Corporation (SCHW) pays a dividend of 0.32, which translates to dividend yield of 0.63% based on the current price. Stock has a payout ratio of 19.60%. According to this ratio, SCHW should be able to continue making payouts at these levels. The company trades at a free cash flow yield of -2.23 and has a P/E of 32.49. Compared to the average company in the 21.41 space, SCHW is relatively expensive. The average analyst recommendation for SCHW is 2.00, or a buy.
The Charles Schwab Corporation insiders have sold a net of -2,704,247 shares during the past three months, which implies that the company’s top executives have been feeling bearish about the stock’s outlook. Finally, SCHW’s beta of 1.73 indicates that the stock has an above average level of market risk.
E*TRADE Financial Corporation (NASDAQ:ETFC) scores higher than The Charles Schwab Corporation (NYSE:SCHW) on 7 of the 13 measures compared between the two companies. ETFC has the better fundamentals, scoring higher on profitability and leverage metrics. ETFC wins on valuation measures. ETFC has better insider activity and sentiment signals.