Big and successful doesn't necessarily mean buy.
JPMorgan Chase (NYSE:JPM) is a dominant bank active in, and profiting from, many different types of finance and investment. Since it's been doing very well lately, its shares aren't as cheap as they used to be. It's worth exploring whether there's any room for advancement left in this stock, and hence whether it's a buy.
Taking it to the bank
On the basis of fundamentals, JPMorgan Chase is a dynamo. The bank's most recently reported set of results blew far past estimates to deliver a quarter brimming with growth. Revenue increased by 5% on a year-over-year basis to almost $30 billion -- an all-time quarterly record -- while net profit rose 12% to land at $9.2 billion.
Sure, quite a bit of this was due to the interest rates that have crept up over the trailing 12-month period -- interest income rose by 24% across that period, after all.
But the bank has so many sources of revenue, it can pull several levers to lift growth. During the quarter, credit card sales (up 10%) were a standout area, as was debt underwriting in the company's strong investment bank operations.
At the same time, JPMorgan Chase is doing an encouraging job managing costs -- never an easy task for a monster lender with an army of employees and physical branches. Noninterest expenses crept up only by 2%, and were eclipsed by the previously mentioned total revenue growth of 5%.
Not surprisingly, the company's overhead ratio (i.e., the efficiency ratio) saw a pleasant drop to 55% from the preceding quarter's 59%.
Rise with the tide
It seems the good times will continue to roll for JPMorgan Chase. The analysts tracked by Yahoo! Finance collectively estimate that per-share net profit will rise by almost 12%, although top-line growth is expected to be marginal.
This fits the general view of the future from numerous analysts and market-watchers: slow to no interest rate increases from the Fed, increased profitability from at least a few key areas for the bank, and continued cost-fighting.
Another reason to pull the trigger on JPMorgan Chase is the bank's dividend. As I've previously said, I firmly believe JPMorgan Chase's payout is best in class. Its $0.80 per share quarterly dividend isn't the highest-yielding among the big four U.S. banks -- that distinction belongs to Wells Fargo (NYSE:WFC). But it ranks No. 2, and is backed by a much stronger and smoother operation (here's a good read about Wells Fargo's recent struggles).
Some might argue that, thanks to the tailwinds of a good economy and the Fed's recent interest rate rises, it's not hard to make a buck in the banking sector now -- as you can read in the article linked above, even Wells Fargo is beating estimates.
But even given that, JPMorgan Chase is growing significantly in crucial areas, while doing a good job taming costs. It will almost certainly continue to take advantage of the still-humming economy. So, yes, I think the bank's stock is absolutely a buy.