National Discount Brokers (NDB) offers a quality online service -- including its innovative NDB University, which provides educational materials on personal finance and investing through an arrangement with Time Warner's (NYSE:TWX - news) Money.com. Piper Jaffray estimates that NDB's customer accounts grew by 32% in the December quarter -- twice the industry average.
The market is now valuing the company at $3,000 per customer account, or just 30% to 50% of what investors are paying per account for the top online brokers like Charles Schwab (NYSE:SCH - news) and E*Trade (Nasdaq:EGRP - news) . And that assumes the firm's market-making and specialist businesses are basically worthless. Of course, investors are willing to pay up for firms with the best-known brands and significant market share. Still, that's an enormous price disparity.
Not long ago, a single analyst was estimating the company would earn $0.85 a share in the year ending in May. But Q3 earnings released March 30 suggest that estimate could prove way low. Revenue roared ahead 81% to $68.2 million, pumping EPS from continuing operations up to $0.58 from just $0.14 last year. That brings year-to-date earnings to $0.90 per share.
Frenetic market activity continues to produce outsized profits. Trades per day by individual investors soared 61% from the same period a year ago while trades through its Sherwood Securities unit increased 74%.
As long as market activity stays so strong, National Discount Broker should remain on a roll. Then again, it could get hit much harder than the other online brokers in a market slowdown.
National Discount Brokers is an online brokerage with roughly 128,000 customer accounts and assets of $6.5 billion. Basic limit orders cost $19.75. Barron's recently rated NDB in a tie for #2 among 21 online brokers. Piper Jaffray figures NDB claimed 1.2% of all online accounts and 1.3% of trading volume as of December, placing it tenth among online brokers.
Sherwood is a wholesale market maker in about 3,600 Nasdaq and small-cap stocks. It executes transactions primarily for institutional investors.
The parent also owns a 47% membership interest in Equitrade Partners, a specialist in 157 New York Stock Exchange stocks. NDB plans to sell Equitrade.
As of September, insiders owned 8.1 million shares, or 56.2% of the company.
FINANCIAL FACTS
Income Statement*
12-month sales: $196.1 million
12-month income: $15.7 million
12-month EPS: $1.11
Profit Margin: 8.0%
Market Cap: $389.6 million
(*From continuing operations.)
Balance Sheet*
Cash: $0.8 million
Total Assets: $195.5 million
Total Liabilities: $69.3 million
Long-term Debt: None |
