The 3 Most Compelling Numbers at E*TRADE

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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  ) .

1:10 split
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. 

$3.7 billion
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.

$799 million
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.

For another company broken down into just three numbers, click here.

Anand Chokkavelu doesn't own shares in any company mentioned. Charles Schwab is a Motley Fool Stock Advisor pick. The Motley Fool has a disclosure policy.

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  • Report this Comment On July 15, 2010, at 2:25 PM, twolf2919 wrote:

    The author mentions one reason for a reverse split: to avoid delisting. However, there is another: to attract institutional investors. I don't know what the current "minimum" is, but many funds avoid companies whose shares traded below, say, $10.

    A company has 90+ days to bring its stock price above $1 - using a reverse stock split is one way. For a year now, ETFC never got close to getting below $1, so why would they do a reverse split to avoid being delisted?

    Given this, I think my reason is a more likely one than the author's.

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