Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Here's Why Capital One Stock Is Plunging Today

By Matthew Frankel, CFP® - Updated Apr 22, 2019 at 11:59AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors aren't thrilled with the bank's latest results.

What happened

Capital One Financial ( COF -2.65% ), the regional bank best known for its credit card business, reported its fourth-quarter earnings on Wednesday, and investors aren't happy. As of 11:20 a.m. EST, the stock is down by nearly 7% -- a massive one-day drop for a bank.

So what

Capital One missed expectations on the top line. Revenue of $7.01 billion came in about $70 million shy of estimates, and while earnings of $2.48 per share exceeded analysts' predictions, there were some other items that may be concerning investors.

Two young women paying for purchases with a credit card.

Image source: Getty Images.

Domestic credit card loans increased by 8%, but marketing expenses jumped by a staggering 65%. Competition has never been higher in the credit card industry, so companies are having to pay more and offer higher incentives in order to win new customers.

Furthermore, Capital One has agreed to buy roughly $9 billion in Walmart credit card balances from Synchrony Financial, a move that could be seen as adding significant risk, as these accounts have high credit losses already. Plus, while Capital One is taking over as Walmart's co-branding partner, it was just revealed that Sam's Club will remain a Synchrony partner. This could also be weighing on the stock.

Now what

After the results were reported, Capital One got hit by a wave of analyst downgrades and lowered price targets, which is undoubtedly making the decline even worse that it otherwise would have been. As an institution that is heavily reliant on the credit card business, Capital One is a bit more sensitive than most to economic slowdowns, and a revenue miss during the booming times isn't what investors wanted to see.

Check out the latest Capitol One earnings call transcript.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Capital One Financial Corporation Stock Quote
Capital One Financial Corporation
COF
$143.12 (-2.65%) $-3.90

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
673%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.