Since its November IPO, KBW's
In the fiscal fourth quarter, revenues increased 32% to $120.2 million and earnings surged from $7.3 million, or $0.26 per share, to $25.4 million, or $0.87 per share. Of course, the big driver for KBW is the investment banking unit, where revenues rose 69% to $67.2 million. The breakdown: $19.1 million for underwritings (such as IPOs), $19.4 million in private placements, and $28.7 million for advising on mergers and acquisitions.
But dealmaking is not just a U.S. phenomenon. Europe is also seeing lots of deal activity, and the good news is that KBW has been building out its platform in the region.
KBW provides investment banking services -- like M&A advising and IPOs -- primarily for the financial services industry. The firm also has asset management, trading, and a well-regarded research team.
Like peers Greenhill
However, even in a strong market, investment banks can stumble. All it takes is failing to snag a couple major clients, which may explain why KBW does not provide revenue and earnings guidance.
It is also worrisome that KBW issued only 6.8 million shares in its IPO; that makes for a fairly small float, which means it is easier for traders to move the stock. Just look at yesterday's performance, in which KBW's stock soared 14.31% on volume of only 694,700 shares.
There's no doubt that KBW has a strong investment-banking franchise and a profitable structure, but it also comes at a high price, and with a good amount of risk.
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Fool contributor Tom Taulli does not own shares mentioned in this article.