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Stock investors today face data overload. Aside from basic financial statements, there is a flood of ratios, statistics, multiples, analyst estimates, comps, margins, and industry-specific metrics to wade through.
In this regular series, I will choose a company and distill all the data down to three numbers you absolutely need to know before making a buy-sell-ignore decision.
Today's breakdown is for discount broker E*TRADE (Nasdaq: ETFC ) .
E*TRADE did a 1:10 split in June. In other words, 10 shares combined to become one larger share. That ain't the good kind of split. With its stock price languishing below $2 a share, E*TRADE did it to stay well clear of the $1 per-share price the Nasdaq stock exchange requires to stay listed.
The next number explains why E*TRADE's shares were so low in the first place.
Because it got neck-deep in subprime assets, E*TRADE has written off $3.7 billion in bad loans and assets starting in Q3 2007.
As of the end of May, it carried $18.4 billion in loans outstanding -- $2.1 billion of those loans are delinquent. Lingering concerns over the quality of its balance sheet has weighed down E*TRADE's shares, but bulls point to its saving grace.
Enter the final number.
E*TRADE still has significant earning power in its 2.7 million brokerage accounts. If you stripped out the write-offs (a big if, I know), E*TRADE has generated $799 million in operating profit over the last 12 months.
Along with its competitors TD AMERITRADE (Nasdaq: AMTD ) and Charles Schwab (NYSE: SCHW ) , E*TRADE faces the threat of increased competition and a race to the bottom on pricing. That said, E*TRADE is trading at less than four times its trailing operating profit excluding write-offs.
The bottom line
Analyzing E*TRADE is an exercise in weighing a ragged balance sheet versus viable business operations. Keep these three numbers in mind as you make your buy, sell, or ignore decision.