Why Etrade is undervalued:Why I think the stock is worth $50 right now,compared to Schwab.This analysis is of 7/29/00 and might have someholes in it. If you have any comments orsee faults, by all means speak up.Basic facts: EGRP SCHOutstanding 291,710,000 1,258,190,000 sharesCurrent price 14.5625 34Current PE NA 64Market Cap. 4,248,060,000 42,778,560,000Qtr. 6/30/00Ad spending 115,081,000 77,100,000Basic math:How much money would Etrade have to earn tohave a PE ratio of 64 like Schwab?P = priceES = earnings per shareE = total earningsIf EGRP has a P of $50 and we want a PE of 64 then:P/ES = 64P = 64ES50 = 64ESES = .78125ES = E/Outstanding shares.78125 = E/291,710,000E = 227,898,437So EGRP has to have earnings of $227,898,437 tojustify a PE of 64Last quarter Etrade spent 115,081,000 on marketing.Which is $460,324,000/yr.If they cut advertising in one half they will have earningsthat will justify a PE of 64 and a STOCK PRICE OF $50.Remember Schwab has a PE of 64.Remember also that this does not take into fact howfast EGRP is growing.My Biased Opinions and Misc. Facts:EGRP can cut back in advertising by half and still outgrow Schwab.EGRP owns a bank, Schwab doesn't.EGRP doesn't have all of the brick and mortar expenses that SCH does.EGRP is expanding globally much faster than SCH.I could go on, but you probably get the drift.Doug
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