LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So, right now, I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today I am looking at Schroders (SDR -0.65%) to determine whether you should consider buying the shares at 2,250p.
I am assessing each company on several ratios:
Price-to-earnings (P/E): Does the share look good value when compared against its competitors?
Price/earnings growth (PEG): Does the share look good value factoring in predicted growth?
Yield: Does the share provide a solid income for investors?
Dividend cover: Is the dividend sustainable?
So, let's look at the numbers:
| Stock | Price | 3-yr EPS growth | Projected P/E | PEG | Yield | 3-yr dividend growth | Dividend cover |
|---|---|---|---|---|---|---|---|
| Schroders | 2,250p | -6% | 18.3 | 0.9 | 1.9% | 16% | 2.4 |
The consensus analyst estimate for next year's earnings per share is 123p (21% growth) and dividend per share is 49p (14% growth).
Trading on a projected P/E of 18.3, Schroders appears cheaper than its peers in the general financial sector, which are currently trading on an average P/E of around 22.6.
Schroders' P/E and double-digit growth rate give a PEG ratio of around 0.9, which implies the share is fairly priced for the near-term earnings growth the firm is expected to produce.
Offering a 1.9% yield, Schroders dividend yield is below the sector average of 3.6%. Additionally, Schroders has a three-year compounded dividend growth rate of 16%, implying that the yield will continue to lag behind that of its peers.
However, the dividend is just under two-and-a-half times covered by earnings, giving Schroders plenty room for further payout growth.
So, is now the time to buy Schroders?
Asset manager Schroders has produced mixed results over the past year. In particular, though, the company's assets under management grew by 13% during 2012, the company's profit before tax actually fell by 12%.
Having said that, many City analysts forecast that Schroders is set to return to growth this year as the company benefit's from the strong rally in equity markets.
Indeed, it appears that the company's is on track to achieve these forecasts because, while the company performed poorly throughout the majority of 2012, during the fourth quarter of the year, business started to pick up and the company's revenues jumped up 14% from the previous quarter.
Furthermore, Schroders management remains proactive, and are searching for acquisitions to boost organic growth. For example, Schroders recently acquired Cazenove Capital, one of the UK's oldest and most-respected stockbrokers, which increased Schroders assets under management by nearly 10%.
Moreover, it seems that Schroders predicted near-term earnings growth has really impressed investors, so much so that, over the past year, the firm's share price has risen around 60%, compared to the FTSE as a whole, which is only up 12%.
However, despite this rapid rise in the company's share price, Schroders still trades at a discount to its peers in the sector. So, all in all, I feel that now looks to be a good time to buy Schroders at 2,250p.
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
