The last time the valuation of Charles Schwab (NYSE: SCHW) was this low, aside from March 2020 when all stocks plummeted at the start of the pandemic, was at the end of 2011.
In 2011, Schwab endured a difficult year. Its stock price dropped 33%, and by Dec. 31, 2011, it was trading at just $9.86 per share. At that point, it had a price-to-earnings (P/E) ratio of 14.1.
Fast-forward 11-plus years to 2023 and Schwab is enduring another rough stretch, and its stock price is down about 38% year to date and it is trading at around $51 per share. Its P/E ratio is about 14, which is the lowest since the end of 2011 -- except for the aforementioned pandemic dip.
I draw the parallel because investors who bought Schwab at that 2011 low were rewarded with a significant long-term return over the next decade-plus. Let's take a look at how much a $10,000 investment in Schwab stock back then would be worth today.
Double-digit annual returns
This has been a tough year for Schwab, which has felt the aftershocks of the banking crisis. The financial services giant is most known for its brokerage, asset management, wealth management, and investor services businesses, but it also has a banking arm. Like the rest of the industry, Schwab Bank has seen significant deposit outflows this past quarter. But while deposits fell 11% year over year, Schwab still managed to increase overall revenue by 10% due to its diverse revenue streams. And unlike smaller regional banks, Schwab has plenty of cash and liquidity to weather the deposit outflows.
While Schwab's stock price is down this quarter, due mostly to its banking unit, it outperformed the sector in a rocky 2022. The company's stock price was actually up for the year -- by just 0.10%. But in a market where the S&P 500 fell 19%, Schwab showed its resilience.
As of April 26, the stock is trading at about $51 per share. On an annualized basis, it has posted a 14.2% return since Dec. 31, 2011 -- and that includes the recent 38% dip.
At the end of 2022, it was trading at about $83 per share. If you looked at the 11-year period from Dec. 31, 2011, to Dec. 31, 2022, the stock had an annualized return of 19.9% per year. So how much would you have if you invested $10,000 in Schwab after the 2011 correction?
Sell-off creates buying opportunity
For this hypothetical, let's look at the return through April 26, so that we include the 38% drop in 2023. If you invested $10,000 in the stock on Jan. 1, 2012, and reinvested all of the dividends over that time, you'd have a total of about $53,500. So even including this very difficult period for the stock, it is doing pretty well long term.
Given the historically low valuation, along with the fact that it remains a very strong, stable company, and shouldn't feel any long-term effects from this recent sell-off, it might be a good time to consider buying this stock.
Analysts are mostly bullish on the stock, with an average price target of $66.50 -- which would be about a 30% gain from where it is now. Schwab's bread and butter is the brokerage business, along with wealth management, and these two business are among the market leaders and should continue to grow. The recent sell-off has created a good buying opportunity.
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Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
