Etrade News (ticker: ETFC) Dominates The Headlines, But Will The Story End Happily Ever After?
I like hearing Etrade news quite a bit. It’s shaping up to be a pretty good story. If Etrade’s able to regain it’s profitibility, it will be a magnificent story.
The main reasons I like Etrade are 1) Like you said, their brand is worth quite a bit and 2) Insiders were buying it up like crazy at around the $4 level. Confident insiders make me feel warm and fuzzy.
They got caught up in the craziness of the booming housing market. Companies were making money hand-over-fist by issuing lucrative, but risky sub-prime loans. Etrade dove in head-first.
Right now, they’re bleeding cash out of their butts and continue writing down the value of their mortgage holdings. The latest Etrade news is that they have a long, drawn-out plan to be profitable by the end of 2008.
I use their trading platform for one of my dad’s accounts and it’s good. They have lots of free research, good execution speed, and an intuitive look and feel.
Their earnings history was kinda spotty even before the sub-prime meltdown, and their margins are significantly slimmer than some of their competitors. Also, since they carry so much debt, their valuation ratios (i.e. P/E) usually remains lower even in the good times.
But right now it does look very cheap. It’s book value per share is over $6. But that’s based on the stated values of their mortgages which may soon come under question. But it also looks really cheap when you look at it’s price/sales. That means that it’s getting more customers and the revenues are flowing.
I’m 75% confident that within a few years, they’ll be able to earn at least $1.00 per share, which is what they were making around 2004. With a P/E of about 10 (low-ball) their shares would be worth $10, which would be 100% up from where it is now. If you look for a more realistic P/E of around 15, then you’re talking about a 3-bagger.
Like I said, I do like the Etrade news, but I don’t think I’d buy it. If I did it would be with a small portion of my portfolio. It’s one of those ones that speculative. Like, you could make a lot of money, but you could lose a lot, too. I want to know more about their toxic mortgage debt before I go in.
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