SCHW stock price cheered Q1 earnings: don’t buy Schwab yet

Charles Schwab (NYSE: SCHW) stock price jumped by more than 5% on Monday after the company published its quarterly earnings. The shares jumped to a high of $52.76, which was ~16% above the lowest level this year. It has crashed by almost 40% from the highest point this year.

Is it safe to buy Charles Schwab stock?

One of the biggest banking and finance news this week was the latest Charles Schwab earnings. On Monday, the embattled company said that its revenue rose by 9% to $5.12 billion in the first quarter. That increase was about $10 million lower than what analysts were expecting.

Further, its net income jumped by 14% to $1.6 billion while its pre-tax profit margin rose to 41.2%. This happened as the number of customers rose by more than 1 million in the first quarter. Its net assets jumped to over $132 billion. Its Advisor Services segment saw its inflows rise to over $71 billion. The CFO said:

“While bank deposits shrank by 11% versus the prior year-end as clients realigned their allocations across our expansive selection of transaction and investment cash solutions, we observed a decline in the average daily pace of bank sweep movements from January to March.”

Therefore, the SCHW stock price rose because of the encouraging results compared to what analysts were expecting. Also, it jumped as investors started calling a bottom since the shares have moved into the deep bear market.

SCHW chart by TradingView

Wait before you buy SCHW stock

Still, there are reasons to be cautious about Charles Schwab shares. First, the company will likely face more capital requirements, which will affect its profitability in the near term. In fact, data compiled by SeekingAlpha shows that analysts estimates are falling. On Monday, analysts at Bank of America downgraded their target from $53 to $51.

Second, the company also issued a weak guidance as it expects that its revenue will drop by about 6% this year. Finally, there are chances that the banking crisis is not yet over. Therefore, while Charles Schwab is a good company, it is just too early to invest in the company for now.

Instead, we recommend that you invest in big banks like JP Morgan and Citigroup that published strong results. For JPM, there are also signs that dealmaking is back after companies like Merck, Glencore, Newmont, CVC, and Pfizer announced huge deals. 

Watch here: https://www.youtube.com/embed/z38r-gE5dbE?feature=oembed

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