E-Trade Goes It Alone: It May Be Time To Go Long

Nov.21.11 | About: E*TRADE Financial (ETFC)

Since E*Trade (NASDAQ:ETFC) announced that it will not be selling itself (some would say that there were no interested buyers), the stock has fallen roughly 14%. It is down 49% on the year and 55% off its 52 week high of $18.13, as it currently trades around $8.00 a share.

ETFC 6 Month Chart

ETFC 6 Month ChartClick to enlarge
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Earlier this year activist investor Citadel, one of the company's largest holders, sold much of its stake and it is unclear what the bitter investor intends to do with the rest of it. It was reported via twitter today by Doug Kass that he planned to be a buyer of the name this week.

Many have grumbled that the company could have done a better job at detailing the findings of its "strategic alternative review" that it had hired Goldman Sachs (NYSE:GS) to help facilitate, which ultimately led to the brokerage firm issuing the following generic statement:

The continued execution of the company’s business plan is currently the best alternative for increasing stockholder value.

Institutional ownership was up by approximately 10M shares as of September 30th and the most recent short interest report showed a slight decrease in the overall short position. Some important metrics:

Valuation:

Market Cap (intraday):

2.34B

Enterprise Value (Nov 21, 2011):

8.96B

Trailing P/E (ttm, intraday):

16.10

Forward P/E (fye Dec 31, 2012):

10.95

PEG Ratio (5 yr expected):

1.23

Price/Sales (ttm):

1.68

Price/Book (mrq):

0.47

Enterprise Value/Revenue (ttm):

6.44

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Profitablity:

Profit Margin (ttm):

9.98%

Operating Margin (ttm):

12.85%

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Income:

Revenue (ttm):

1.39B

Revenue Per Share (ttm):

5.54

Qtrly Revenue Growth (yoy):

23.20%

Gross Profit (ttm):

2.08B

Net Income Avl to Common (ttm):

138.93M

Diluted EPS (ttm):

0.51

Qtrly Earnings Growth (yoy):

741.20%

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Balance Sheet:

Total Cash (mrq):

3.04B

Total Cash Per Share (mrq):

10.72

Total Debt (mrq):

9.67B

Total Debt/Equity (mrq):

195.42

Current Ratio (mrq):

2.09

Book Value Per Share (mrq):

17.43

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All of the above data fares well when compared to those of its competitors, and as the company continues to write down and move away from its exposure to old toxic and non-productive sub-prime mortgage based investments while focusing on its core brokerage business, the company looks better as a long term investment with each passing quarter. Especially as it continues to trade around and under $8.00 per share with a book value of about $17.00 per share.

I also like to see that earnings growth is substantially greater than that of its peers in the financial/investment brokerage industry:

I have recently been bargain hunting in the financial sector and if E-Trade continues to trade down from current levels, I may have to add some to the shopping cart.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ETFC over the next 72 hours.