Ameritrade's Q3 Shines

Do you remember Stewart from the Ameritrade (Nasdaq: AMTD) commercials four years ago? He diligently helped Mr. P. buy his Kmart (Nasdaq: KMRT) stock while at the same time questioning his boss's manhood for buying only 100 shares. One of my favorites!

While I miss Stewart, Ameritrade seems to be doing OK without him. This morning, the discount broker reported third-quarter earnings of $0.15 per share, which is in line with Wall Street estimates and 25% ahead of last year's third-quarter earnings. Ameritrade posted $222 million in revenues, a 15% jump from year-earlier levels.

Investors are responding well to the report, lifting the stock more than 12% today. Indeed, there's a lot to like. Operating margins increased slightly to 59%. Margin balances have increased to $3.6 billion from $1.6 billion over the last year's third quarter. This is important because it shows some level of confidence on the part of investors, and margin lending is very profitable for brokerage firms. Total trades and daily average revenue trades are both trending higher.

Ameritrade blows away both Charles Schwab (NYSE: SCH) and E*Trade (NYSE: ET) in just about every measure of growth and effective management you can think of. I believe its success comes from the fact that the company knows what it wants to be: a low-cost, no-frills brokerage firm for folks who don't need a lot of hand-holding. This is the exact opposite to Schwab's be-all-things-to-everyone approach.

I have to disclose that my wife and I have our accounts at Ameritrade. While I don't need a lot of guidance, I do need to call in to a phone rep occasionally. The service I've gotten at times is not great. I called in recently to get some information from a Bloomberg terminal on a stock I was researching. The representative I spoke with actually left me with the impression that he had access to a Bloomberg but was unwilling to look up what I needed.

That one admittedly anecdotal issue aside, the bottom line is that this appears to be a well-run company. As long as investors continue to want to do it themselves for little cost, Ameritrade is likely to benefit. The usual caveat about the market and brokerage firms still applies, though. As we've seen in the last few years, when the market tanks, so do the brokers' fortunes.

Fool contributor Roger Nusbaum is an investment manager and wildland firefighter in Prescott, Ariz. At press time, neither he nor his clients owned any of the stocks mentioned. He also misses Stewart.