LPL Financial Holdings Inc (LPLA, Financial) has seen a recent dip in its stock price, with a daily loss of 5.82% and a 3-month decline of 11.53%. Despite these fluctuations, the company boasts a robust Earnings Per Share (EPS) of 14.73. This raises an important question for value investors: is LPL Financial Holdings modestly undervalued? To answer this, we delve into an in-depth valuation analysis, guiding readers through the financial intricacies that determine the company's true market value.
Company Introduction
LPL Financial Holdings is a leading independent broker/dealer offering proprietary technology, brokerage, and investment advisory services. With nearly 20,000 advisors managing over $1 trillion in client assets, the firm's influence on the financial advisory landscape is significant. A comparison between the current stock price of $214.72 and the GF Value of $247.96 suggests that the company may be trading below its fair value, prompting a closer examination of LPL Financial Holdings' financial health and market position.
Summarize GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value by considering historical trading multiples, a GuruFocus adjustment factor based on past performance, and future business performance projections. LPL Financial Holdings (LPLA, Financial), with a market cap of $16.20 billion, appears to be modestly undervalued according to this method. The GF Value Line, which represents the stock's fair value, suggests that LPL Financial Holdings' stock could promise higher future returns, given its current position below this line.
Due to its relative undervaluation, LPL Financial Holdings could offer a favorable long-term investment opportunity, potentially yielding returns that outpace its business growth. This notion is supported by the company's solid financial and profitability metrics, which we will explore in further detail.
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Financial Strength
Investing in companies with solid financial strength reduces the risk of permanent loss. LPL Financial Holdings' cash-to-debt ratio of 0.24, although lower than many of its industry peers, still supports a fair financial strength rating of 6 out of 10. This suggests a balanced financial position, which is crucial for sustaining operations and weathering economic downturns.
Profitability and Growth
Profitable companies with consistent performance are typically safer investments. LPL Financial Holdings has remained profitable for the last decade, with a revenue of $9.70 billion and an Earnings Per Share (EPS) of $14.73 over the past twelve months. Its operating margin of 18.28% ranks well within its industry, and the company's overall profitability score is an impressive 9 out of 10.
Growth is also a vital component of valuation. LPL Financial Holdings' average annual revenue growth of 16.8% outperforms a majority of its industry counterparts. This growth, coupled with a 3-year average EBITDA growth of 15.4%, places the company in a strong position for future value creation.
ROIC vs WACC
An effective way to gauge a company's profitability is to compare its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). LPL Financial Holdings' ROIC of 24.42 is significantly higher than its WACC of 6.67, indicating efficient value creation for shareholders. This comparison is a strong indicator of the company's ability to generate cash flow relative to the capital invested.
Conclusion
Overall, LPL Financial Holdings (LPLA, Financial) presents signs of being modestly undervalued. The company exhibits a fair financial condition, robust profitability, and a growth trajectory that outstrips over half of its industry peers. For a more comprehensive look at LPL Financial Holdings' financials, interested investors can explore the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
