Approaching a company from all sides is a great way to analyze the floor and the ceiling of its potential as an investment. We can do this through SWOT analysis, a look at a company's strengths, weaknesses, opportunities, and threats. Today, I'd like to focus on E*TRADE Financial (Nasdaq: ETFC), the popular discount brokerage service.


  • In its most recent earnings report, E*TRADE announced its first quarterly profit in three years. It had been steeped in red ink for a long time because loan losses accumulated at a much faster pace than anticipated, but it looks as though E*TRADE may be ready to turn the tide after demolishing analyst expectations. The company greatly reduced its provision for loan losses, and its net charge-offs declined as well.
  • Furthermore, among great competition from other brokers such as TD AMERITRADE (Nasdaq: AMTD) and Charles Schwab (Nasdaq: SCHW), E*TRADE managed a net increase of 18,000 brokerage accounts.
  • In June, E*TRADE announced a reverse 1-to-10 stock split, which was done to boost the price of its shares so it could avoid the possibility of a Nasdaq delisting. While you never want to see your shares languishing around $2 a pop, at least now E*TRADE doesn't have to worry about exchange requirements.


  • Although E*TRADE is best known for its online brokerage service, it also has a mortgage and banking services unit. The reason you may not know that is because since 2007, this segment has done nothing but report negative operating profits. At the end of May, E*TRADE had about $18.4 billion in loans outstanding, of which $2.1 billion was delinquent. While net charge-offs decreased this quarter, they were still $225 million, a pretty significant number.
  • Overall, E*TRADE's balance sheet and past performance aren't something to brag about. With a debt-to-equity ratio of 2.7 and lingering questions about its provisional loan losses, it's no wonder the company has been too busy to worry about boosting revenues. In the past five years, sales have decreased by almost 10% annually.


  • E*TRADE still hasn't joined the price-slashing ETF brokerage wars. So far, Fidelity has teamed up with Blackrock's (NYSE: BLK) iShares line of exchange-traded funds, and Vanguard has its own arsenal of ETFs as well. E*TRADE could benefit should it find itself in a position to partner up with either State Street (NYSE: STT), which is behind the popular SPDR ETFs, or Invesco (NYSE: IVZ), which runs PowerShares ETFs.
  • E*TRADE often ranks high versus the other brokers with regard to its banking services; trying to scale out and continuing to diversify its offerings should give it an opportunity to break away from the pack.


  • There is no shortage of online brokers these days, and each one is cutting costs to try to maintain a competitive advantage. Schwab, Vanguard, and Fidelity all recently cut ETF fees (to free in certain cases). According to a 2010 SmartMoney broker survey, E*TRADE ranks No. 2 overall for online brokerage services. That's certainly a strength, but reigning supreme means there are plenty of other companies gunning for your spot. Competitors such as Sharebuilder, TradeKing, Bank of America (NYSE: BAC), and optionsXpress all offer unique products that could eat into E*TRADE's financial pie.

Share your thoughts in the comments section below. What did I miss about E*TRADE?

Jordan DiPietro doesn't own any shares of stocks mentioned above. optionsXpress Holdings and Charles Schwab are Motley Fool Stock Advisorchoices. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.