- For investors wondering whether LPL Financial Holdings at around US$300 a share looks expensive, cheap, or somewhere in between, this article breaks down what the current price might be implying.
- The stock has been relatively flat in the near term, with a 0.2% return over the last 7 days and 0.1% over the last 30 days. Year to date it has returned negative 16.8%, and the 1 year return sits at negative 9.8%, compared with 58.9% over 3 years and 114.7% over 5 years.
- Recent coverage has focused on how wealth management platforms like LPL Financial Holdings are positioned as markets and investor activity shift. There has also been commentary on how its scale in serving advisors could influence its long term competitiveness. These themes help frame why the share price can move even when there is no single headline driving the story.
- LPL Financial Holdings currently has a valuation score of 4 out of 6, reflecting where it screens as undervalued on several checks. Next the article will compare different valuation methods before coming back to an even broader way to think about what the stock might be worth.
Find out why LPL Financial Holdings's -9.8% return over the last year is lagging behind its peers.
Approach 1: LPL Financial Holdings Excess Returns Analysis
The Excess Returns model examines how much earnings LPL Financial Holdings can generate above the return that shareholders require, then projects how long that level of profitability can reasonably continue.
In this approach, the starting point is book value of $66.76 per share and a stable earnings figure of $28.44 per share, based on weighted future Return on Equity estimates from 5 analysts. That implies an average Return on Equity of 28.94%, which is compared with a cost of equity of $9.12 per share. The difference between these, the excess return, is $19.32 per share.
The model also uses a stable book value of $98.28 per share, again drawn from weighted future book value estimates from 5 analysts. By capitalising those excess returns over time, the Excess Returns model arrives at an intrinsic value of about $427.18 per share. When compared with the current market price around $300, this suggests the shares trade at roughly a 29.6% discount, indicating a substantial margin between price and this model’s estimate of value.
Result: UNDERVALUED
Our Excess Returns analysis suggests LPL Financial Holdings is undervalued by 29.6%. Track this in your watchlist or portfolio, or discover 58 more high quality undervalued stocks.
Approach 2: LPL Financial Holdings Price vs Earnings
P/E is a common way to value profitable companies because it links what you pay directly to the earnings each share generates. A higher or lower P/E is not good or bad on its own, since investors usually pay more for companies where they see stronger earnings growth potential or lower perceived risk, and expect a lower P/E where growth expectations or predictability are weaker.
LPL Financial Holdings currently trades on a P/E of 27.91x. That sits below the broader Capital Markets industry average P/E of 33.13x, but above the peer group average of 17.29x. Simply Wall St’s “Fair Ratio” for LPL Financial Holdings is 19.44x, which is the P/E level implied by factors such as its earnings growth profile, profit margins, industry, market cap and risk characteristics.
This Fair Ratio is more tailored than a simple comparison with peers or the industry, because it adjusts for company specific traits rather than assuming one size fits all. Comparing the current 27.91x P/E to the 19.44x Fair Ratio suggests the shares trade on a richer multiple than this framework would imply.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your LPL Financial Holdings Narrative
Earlier it was mentioned that there is an even better way to think about valuation, and Narratives are that upgrade, because they let you write a clear story for LPL Financial Holdings, link that story to your own revenue, earnings and margin assumptions, and then see a fair value that you can compare with the current price on Simply Wall St’s Community page, where millions of investors share views. You might, for example, align with an optimistic Narrative closer to the US$543 analyst target that leans on growth in fee based earnings streams and technology efficiencies, or a more cautious Narrative nearer the US$378 target that focuses on risks like interest rate sensitivity and fee compression. Whichever view you choose, the Narrative keeps updating as new earnings or news come in so your story, forecast and fair value stay connected.
Do you think there's more to the story for LPL Financial Holdings? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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